Question
Three individuals live near a bus stop in an area that is very hot during the day, and they often have to wait at the
Three individuals live near a bus stop in an area that is very hot during the day, and they often have to wait at the bus stop for an extended period of time because the bus is frequently late. Planting trees around the bus stop would provide shade, which would make waiting for the bus much more comfortable. Adam's marginal benefit of having an additional tree planted is given by MBA = 5 - Q, Brian's is given by MBB = 15 - 3Q, and Chelsea's is given by MBC = 10 - 2Q, where Q is the number of trees planted. It costs $12 to plant each tree.
(a) [7.5 points] What is the efficient number of trees to plant?
(b) [7.5 points] How many trees will actually be planted if it is left to the free market? (Assume that these individuals each care only about their own benefit from the trees and are unable to negotiate with each other; i.e., each individual is free to purchase and plant any number of trees, but they cannot split the cost of a tree or agree to purchase trees on the condition that the others do the same.)
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