Question

There are three consumers of a public good. The demands for the consumers are as follows: Consumer 1: P1 = 60 – Q Consumer 2: P2 = 100 – Q Consumer 3: P3 = 140 – Q where Q measures the number of units of the good and P is the price in dollars. Now the marginal cost of the public good is $ 60 . What is the economically efficient level of production of the good?

Answer 1

Answer:

80

Explanation:

To get the economically efficient level of production of the good, we will sum up the demand for consumers and equate them to the marginal cost of the public good.

Note that the economically efficient level of output occurs where MSB = MC on the graph. Therefore, since MSB = MC occurs where all the three consumers are in the market, then we'll have;

(60-Q) + (100-Q) + (140-Q) = 60

Expand the brackets

60-Q+100-Q+140-Q = 60

Collect like terms and sum up

300-3Q = 60

3Q = 300-60

3Q = 240

Q = 80

Therefore, the economically efficient level of the production of the good is 80