Individuals A and B are the only consumers of good X. Individual A demand for go
ID: 1207708 • Letter: I
Question
Individuals A and B are the only consumers of good X. Individual A demand for good X is given by: Q = 4 – P and individual B demand for good X is given by: Q = 8 – 2P. The supply for good X is given by MC = 3. Assume good X is a (pure) public good. Good X equilibrium quantity is _______. (NOTE: Write your answer in number format, with 2 decimal places of precision level; do not write your answer as a fraction. Add a leading zero and trailing zeros when needed. Use a period for the decimal separator and a comma to separate groups of thousands. HINT: Sketch the Marshallian “cross” diagram of supply and demand to help you answer this question.) Show all steps.
Explanation / Answer
Equilibrium quantity for Good X will be there where MR = MC
TR = P.Q = (4-Q)Q = 4Q - Q2
MR = 4 - 2Q
Equating MR with MC, we get:
4 - 2Q = 3
4 - 3 = 2Q
1/2 = Q
Q = 0.50 units