(Answered) Socially optimal number of travellers

Management Studies

Problem: Individuals have to decide whether to make a journey or not. For each individual, the benefit of making the journey is 15. The cost of making the journey, C, depends on the number of individuals making the journey, n, according to the function C = 5+n/1000.

Required:

Question 1: What is the equilibrium number of travellers, and what is the total benefit and total cost accruing to all travellers at equilibrium?

Question 2: What is the socially optimal number of travellers?

Question 3: Explain the externality that arises in this example.

Please show steps how you get an answer and please be clear in your explanation.

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Business Management, Management Studies

Category:- Business Management
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