Person 1: MB1= 40 − 2Q Person 2: MB2= 30 − 2Q Person 3: MB3= 31 − Q They are non-rival, just like with public goods. Therefore,  each person benefits from the overall quantity of Q purchased by everyone, not only from the value that they personally acquire. 1. Draw a figure with all three MB curves, the MC curve, and the Social Marginal Benefit (SMB) Curve. Label all x-intercepts, y-intercepts, and kinks in the SMB curve. 2. Given the above MB curves, write down the Social Marginal Benefit Curve as a function of Q.  3. What is the Socially Optimal Choice of Q and would any private individual purchase this on their own?

On the basis of the three Individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good Instructions: Enter your answers as whole numbers (in the gray-shaded cells). Individual #1 Individual #2 Individual #3 (a) Private Demand (b) Public Demand Od Qd Price Qd Price Qd Price Price Qd Price $8 $8 $8 $8 1 1 7 2 7 2 7 2 7 2 6 3 6 3 6 3 6 3 4 4 4 4 5 5 5 4 5 5 4 5 4 5 4 3 6 6 6 3 6 2 7 2 7 2 7 2 7 1 8 1 8 1 8 1 8

On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market demand schedule on the assumption that the good is a private good, and (b) the collective demand schedule on the assumption that the good is a public good. Instructions: Enter only whole numbers in the table below. Demand Curve Private Individual #1 Individual1 #2 Individual #3 Good Demand Curve - Public Good Amount Society is Willing to Рay 2$ Price ed Price Qd Price ed Price $8 1 $8 $8 1 $8 1 7 2 2 7 2 3 3 6 3 5 4. 5 4 4 2 4. 5 4. 3 6. 3 2. 7 2. 4 8 1. 1 8 1 8

For public goods such as bus service, sewage services, power grids,water systems, roads, vaccines, education, law and order, reliableknowledge, and many others, the marginal cost of providing anamount q, MC(q), is positive but decreasing. Suppose that thedemand curve for the good is D(q), i.e. D(q) is societal willingnessto pay for the marginal unit of the public good at level q, D(q)  0and D0(q) < 0. This problem asks you to compare several methodsof deciding how much q to provide.(a) Produce using the competitive rule, p = MC(q). The solutionis denoted qcomp ∗ .(b) Produce as a Monopolist, i.e. solvemaxq≥0 qD(q) - C(q):The solution is denoted qMon ∗ .(c) Produce so as to maximize social surplus from the industry, i.e.solve the problemmaxq≥0 [CS(q) + qD(q)] - C(q);where CS(q) = R0q[D(x) - D(q)] dx is consumer surplus. Thesolution is denoted qISS ∗ .(d) Produce so as to maximize the total social surplus, i.e. solve theproblemmaxq≥0 [B(q) + CS(q) + qD(q)] - C(q);