In the winter, Scott and Bob like the snow on their street to be plowed. Suppose
ID: 1179333 • Letter: I
Question
In the winter, Scott and Bob like the snow on their street to be plowed. Suppose they have identical demand curves characterized by the equation q = 40 - 2p, where q is the number of times the snow gets plowed during winter season. Additionally, suppose that the marginal cost of plowing is $18.
A) What is the social marginal benefit curve when they do not share the same street? (This will be an equation)
B) What is the socially optimal amount that the snow gets plowed in this case? How many times do each get the snow from their streets plowed?
C) Repeat a & b when Scott and Bob share the same street. Are the socially optimal amounts the same?
D) Is it likely that the socially optimal amount will be achieved when the cleared street is a public good? Why or why not? Explain.
Explanation / Answer
A)Given demand curve,
q=40-2p
So
P=40-q/2
B) 40-q/2=MC
40-q=18*2
q=4