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Suppose that three individuals each benefit from a public good. The marginal cost of the public good provision is fixed at 515 per unit: ME
Suppose that three individuals each benefit from a public good. The marginal cost of the public good provision is fixed at 515 per unit: ME = $15 Whereas each of the three individuals [Person 1, Person 2, and Person 3} each receive a marginal benefit for each unit of the public good defined by: Person 1: M31 = 30 2Q Person 2: M32 = 20 2Q Person 3: MB3 = 21 Q As is the case with public goods, they are nonrival. Therefore, note that each person gains benefit from the total amount of 0. purchased by everybody, not just the individual value that theyr purchase themselves leg. Q1, C12, or 13]. 1. Draw a figure with all three MB curves, the MC curve, and the Social Marginal Benefit {5MB} Curve. Label all x-intercepts, y-intercepts, and kinks in the SMB curve. 2. Given the above MB curves, write down the Social Marginal Benefit Curve as a function of Q. Show your work. 3. What is the Socially Optimal Choice of 0. and would any private individual purchase this on their own? Show your work. Suppose that you are on the town council, and that the town currently has C1 = 11 of this public good. You are considering raising money from Persons 1 3 in order to buy another unit of Q, where Person 1 pays t1, Person 2 pays t2, Person 3 pays t3 {t1, t2, and 13 can all be different}. 4. Propose a set of taxes (t1, t2, t3] such that they both {i} raise enough money to buy the extra unit of O, and {ii} that they make each person strictly better off. Show your worl-t
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