Propose an alternative cost sharing arrangement that leads to the efficient quantity of the public good being produced.
There are three consumers of a public good. The marginal willingness-to-pay for the consumers are as follows:
Consumer 1:MWP=60-Q
Consumer2: MWP=100-Q
Consumer 3: MWP=140-Q
where MWPi (i = 1, 2, 3) is in dollars per unit and Q is the quantity of the public good. The marginal cost of the public good is $180.
a) What is the efficient level of production of the public good?
b) If the three consumers were to pay a third of the cost of producing the public good, what quantity of the public good would be produced? What would be the size of the deadweight loss?
c) Propose an alternative cost sharing arrangement that leads to the efficient quantity of the public good being produced.There are three consumers of a public good. The marginal willingness-to-pay for the consumers are as follows:
Consumer 1:MWP=60-Q
Consumer2: MWP=100-Q
Consumer 3: MWP=140-Q
where MWPi (i = 1, 2, 3) is in dollars per unit and Q is the quantity of the public good. The
marginal cost of the public good is $180.
a) What is the efficient level of production of the public good?
b) If the three consumers were to pay a third of the cost of producing the public good, what quantity of the public good would be produced? What would be the size of the deadweight loss?
c) Propose an alternative cost sharing arrangement that leads to the efficient quantity of the public good being produced.
