1.

Suppose 100 citizens each derive marginal benefit from submarines according to the function MB = 10 - Q.

If subs cost $100 each to produce, what is the efficient quantity of submarines?

2.

Suppose three neighbours must vote on the installation of a traffic light that costs 210. The cost of the light will be shared by all three.

Voter A values the light at 50; voter B values the light at 50; and voter C (who drives the most) values the light at 200.

i. If the voting rule is that the majority wins, does the light get purchased?

ii. Is it efficient to purchase the light?

3.

Two neighbouring farmers must each decide whether to contribute to a fence that separates their properties.

The fence costs a total of 20. Both farmers currently have a profit of 30 each. With a fence to keep each farmer's animals from wandering onto the other's property, both farmers would experience a 15 rise in profits.

Draw the payoff matrix and discuss the possible outcomes.