LSCPA MICROECONOMICS(LL)TXT
21st Edition
ISBN: 9781260720754
Author: McConnell
Publisher: MCG
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Question
Chapter 4, Problem 6P
To determine
The optimal quantity of public good.
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2. In this problem, you will compare the level of a public good chosen under majority voting to the socially-optimal level under three different sets of circumstances. Suppose first that individual i's demand curve for z is given by αi/z, where αi is a positive parameter. Instead of being linear, this demand curve is a hyperbola. Suppose further that z costs $1 per unit to produce (c = 1) and that this cost is shared equally among consumers. Therefore, cost per person is 1/n per unit of z. Then consider the three sets of circumstances listed below. Each situation has a different number of consumers in the economy and different collections of α values for the consumers. The number of consumers is denoted n and the vector of α values is denoted A = (α1,α2,...,αn-1,αn). Case 1: n = 7, A = (4, 2, 12, 4, 5, 13, 8). Case 2: n = 5, A = (10, 6, 11, 14, 8). Case 3: n = 9, A = (6, 9, 10, 4.5, 12, 7, 13.5, 8, 11). Using this information, do the following:
a)For each case, compute the preferred z…
1. Suppose there is a society with two people who have the following valuations of level y of a public good: v1(y) = 1210√y and v2(y) = 410√y so their marginal benefits are given by 605/√y and 205/√y, respectively. The cost of providing the public good is given by c(y) = 10y. So we have MC(y) = 10.
Suppose that their utility is given by u1 = x1 + v1(y) and u2 = x2 + v2(y) , where xi denotes person i’s money (that is not spent on the public good). Further, suppose their wealth/income levels are given by w1 = 500 and w2 = 800.
(a) What is the socially optimal level of the public good?
6. Consider the allocation of surface water between two types of users. The marginal net benefits are MNB, (q) =12-q, for one type and MNB, (q₂)=6-q, for the other type, where g, and q denote the quantity of water used by each type in suitable units and MNB denotes marginal net benefits in dollars per unit.
a. Determine the aggregate marginal net benefit. b. Suppose there are q, 8 units of water available in a given year. Determine the efficient
allocation of water to the two types. c. Suppose there are q, 4 units of water available in a given year. Determine the efficient
allocation of water to the two types. d. Draw a clearly labeled graph illustrating the efficient allocation of water in parts b and c.
Chapter 4 Solutions
LSCPA MICROECONOMICS(LL)TXT
Ch. 4.A - Prob. 1ADQCh. 4.A - Prob. 2ADQCh. 4.A - Prob. 3ADQCh. 4.A - Prob. 1ARQCh. 4.A - Prob. 2ARQCh. 4.A - Prob. 3ARQCh. 4.A - Prob. 1APCh. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Prob. 3DQ
Ch. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7P
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