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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
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:

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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?

Subpart (a):

To determine

Public goods.

Explanation

If the movie is being played in the dorm room, then it is considered as a public good. None of the roommates can be excluded from watching the movie and on...

Subpart (b):

To determine

Number of movies need to rent.

Subpart (c):

To determine

Total cost and surplus.

Subpart (d):

To determine

Public goods and benefits.

Subpart (e):

To determine

Public goods and incentives.

Subpart (f):

To determine

Public goods and incentive.

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