Four roommates are planning to spend the weekend in their dorm room watching old movies,

and they are debating how many to watch. The following table shows their willingness to pay for

each film.

Orson Alfred Woody Ingmar

First film $7 $5 $3 $2

Second film 6 4 2 1

Third film 5 3 1 0

Fourth film 4 2 0 0

Fifth film 3 1 0 0

a. Within the dorm room, is the showing of a movie a public good? Why or why not?

b. If it costs $8 to rent a movie, how many movies should the roommates rent to

maximize total surplus?

c. If they choose the optimal number from part (b) and then split the cost of renting the

movies equally, perform a welfare analysis for this situation.

d. Is there any way to split the cost to ensure that everyone benefits? What practical

problems does this solution raise?

e. Suppose they agree in advance to choose the efficient number and to split the cost of

the movies equally. When Orson is asked his willingness to pay, will he have an

incentive to tell the truth? If so, why? If not, what will he be tempted to say?

f. What does this example teach you about the optimal provision of public goods?