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Suppose a society with two people, Dooley and Kildong, and a public good, Bab. Their marginal willingness to pay schedules at quantity Q of Bab
Suppose a society with two people, Dooley and Kildong, and a public good, Bab. Their marginal willingness to pay schedules at quantity Q of Bab are given as follows. Dooley: MWTP =5-Q if Q < 5 =0, otherwise Kildong: MWTP = 13-2Q if Q < 6.5 =0, otherwise The marginal cost of producing Bab is increasing as a greater amount of Bab is produced. Each unit of Bab is produced at 0.6Q with no fixed cost. 1. What is the social MB curve for Bab if Q < 5? 2. What is the social MB curve for Bab if 5 < Q <6.5? 3. What is the social MB curve for Bab if Q > 6.5? 4. What is the supply curve of Bab? 5. What is the efficient level of Bab production? 6. Would the efficient level of Bab production be achieved in the competitive market? Now the government uses the preference revelation mechanism that is explained at the lecture meeting so that everyone uncovers their true MWTP curve. 7. How much Bab will be provided in this case? 8. How much will be Dooley's marginal tax payment for Bab in this case? 9. How much will be Kildong's marginal tax payment for Bab in this case
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