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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: a. Within the dorm room, is the showing of a movie a public good? Why or why not? b. If it costs $8 to rent a movie, how many movies should the roommates rent to maximize total surplus? c If they choose the optimal number from part (b) and then split the cost of renting the movies equally, how much surplus docs each person obtain from watching the movies? d. Is there any way to split the cost to ensure that everyone benefits? What practical problems docs this solution raise? e. Suppose they agree in advance to choose the efficient number and to split the cost of the movies equally. When Steven 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?

BuyFind

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305156050
BuyFind

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305156050

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Chapter
Section
Chapter 11, Problem 5PA
Textbook Problem

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:

Chapter 11, Problem 5PA, Four roommates are planning to spend the weekend in their dorm room watching old movies, and they

a. Within the dorm room, is the showing of a movie a public good? Why or why not?

b. If it costs $8 to rent a movie, how many movies should the roommates rent to maximize total surplus?

c If they choose the optimal number from part (b) and then split the cost of renting the movies equally, how much surplus docs each person obtain from watching the movies?

d. Is there any way to split the cost to ensure that everyone benefits? What practical problems docs this solution raise?

e. Suppose they agree in advance to choose the efficient number and to split the cost of the movies equally. When Steven 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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