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Kirsten owns a business on a street on which the street lights have been inadequate and need to be updated. She learns that each light
Kirsten owns a business on a street on which the street lights have been inadequate and need to be updated. She learns that each light costs $20. She has two neighbors that would each benefit from improved street lights. A reliable estimate of their willingness to pay is P = 20 - Q. Kirsten's own demand is represented by the equation, P = 40 - 2Q.
- Derive the aggregate willingness to pay curve. What is the socially optimal number of street lights for this street?
- If the private market were to provide the street lights, how many would be installed?
- Describe the free-rider and inefficiency situations in this case.
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