Question

Suppose Margaret and Thomas are the only two homeowners in the neighborhood. Margaret's demand for clean streets is Q = 50 - 2P. Thomas's demand for clean streets is Q = 40 - P. What is the socially optimal number of clean streets if the marginal cost of cleaning them is $35?

Answer 1

Answer:

20 is the socially optimal number

Explanation:

In this question, we are asked to calculate the socially optimal number of clean streets given the marginal cost of cleaning them.

To solve this problem, we employ a mathematical approach as follows:

Market demand = Sum of Individual demand

Magaret demand = p = (50-Q)/2 = 25-0.5Q

Thomas demand = P = 40-Q

Market demand = 25-0.5Q + 40-Q = 65-1.5Q

MC = 35

Socially optimal number = MC = Market demand

35 = 65-1.5Q

30 = 1.5Q

Q = 20