Sharing the cost:-

Two people with identical preferences for e-services decide that they will each purchase individual levels of service, then place a joint order for the total and share the cost equally (as is often done when dining out with friends). Specifically, each person has marginal willingness-to-pay of w(x) = 10-x for service level x. There is a fixed unit cost of $6.00 per unit level of service. The marginal production cost of the service is $5.00. (By symmetry, each person purchases the same amount x.)

(a) If the two people did not share the cost, but each paid for his or her own order, how much would each purchase? What is the consumer surplus for each person? What is the profit to the service provider for each person? What is the total social surplus per person?

(b) Under the sharing arrangement, how much will each purchase?

(c) What is the consumer surplus of each person in this arrangement?

(d) What is the profit to the service provider for each person, and what is the total social surplus per person?