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Economics

Question: Consider a community consisting of three voters, Al, Bob and Cathy. The Marginal Benefit function for each person is, for lighthouse service G is;

MBa = 40 - 4G for Al,

MBb = 20 - 2G for Bob, and

MBc = 10 - G for Cathy. (Interpret this as demand function.)

The marginal cost of producing the government service is MC= 24.

(i) Draw a diagram to show the marginal benefit functions for each person and the marginal cost. Use the back of this page.

(ii) Suppose there is no government organization to provide this public good. The lighthouse could be privately provided. Which person would provide the public good and by how much?

(iii) What is the Pareto efficient level of the lighthouse service?

(iv) Suppose the tax system in place is equal share system. Among the three individuals, who would vote for the project of community lighthouse?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M92587278

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