Map Sapling Learning Suppose that a small town wants to install street lamps, wh
ID: 1228188 • Letter: M
Question
Map Sapling Learning Suppose that a small town wants to install street lamps, which are nonrival in consumption and nonexcludable. Each of the 25 people in the town value street lamps according to the following schedule: Number of street 1 lamps Marginal Benefit 30 26 22 18 14 10 6 Street lamps each cost $250 to install. Use this information to answer the questions below. What is the socially optimal number of street lamps? Number Street Lamps Suppose that 20 of the 25 townspeople decide Suppose the town government decides to build street that they will not help pay for street lamps, and lamps and pay for the street lamps through taxation will instead enjoy (for free) the street lamps built How much should each person be taxed to pay for the by the other five people. What is the maximum optimal number of street lamps if everyone is taxed number street lamps that will be built by the equally? remaining five people? Number Number Street Lamps ToolsExplanation / Answer
answer.
optimal quantity is where MR=MC and
social cost = private cost + external cost
If external costs > 0, then private costs < social costs.
Then society tends to:
– Price the good or service too low, and
– Produces or consumes too much of the good or service.
therefore social optimum price = 250 + 4*18 = $322
n optimal quantity of 4 street lamps = $322 / 4 = 80.5