Four roommates are planning to spend the weekendin their dorm room watching old movies, and theyare debating how many to watch. Here is theirwillingness to pay for each film:Dwayne Javier Salman ChrisFirst film $7 $5 $3 $2Second film 6 4 2 1Third film 5 3 1 0Fourth film 4 2 0 0Fifth film 3 1 0 0a. Within the dorm room, is the showing of a moviea public good? Why or why not?b. If it costs $8 to stream a movie, how many moviesshould the roommates stream to maximize totalsurplus?c. If they choose the optimal number from part (b)and then split the cost of streaming the moviesequally, how much surplus does each personobtain from watching the movies?d. Is there any way to split the cost to ensure thateveryone benefits? What practical problems doesthis solution raise?e. Suppose they agree in advance to choose theefficient number and to split the cost of the moviesequally. When Dwayne is asked his willingness topay, will he have an incentive to tell the truth? Ifso, why? If not, what will he be tempted to say?f. What does this example teach you about theoptimal provision of public goods?
Four roommates are planning to spend the weekend
in their dorm room watching old movies, and they
are debating how many to watch. Here is their
willingness to pay for each film:
Dwayne Javier Salman Chris
First film $7 $5 $3 $2
Second film 6 4 2 1
Third film 5 3 1 0
Fourth film 4 2 0 0
Fifth film 3 1 0 0
a. Within the dorm room, is the showing of a movie
a public good? Why or why not?
b. If it costs $8 to stream a movie, how many movies
should the roommates stream to maximize total
surplus?
c. If they choose the optimal number from part (b)
and then split the cost of streaming the movies
equally, how much surplus does each person
obtain from watching the movies?
d. Is there any way to split the cost to ensure that
everyone benefits? What practical problems does
this solution raise?
e. Suppose they agree in advance to choose the
efficient number and to split the cost of the movies
equally. When Dwayne is asked his willingness to
pay, will he have an incentive to tell the truth? If
so, why? If not, what will he be tempted to say?
f. What does this example teach you about the
optimal provision of public goods?
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