Common Property II

The following questions refer to the accompanying diagram, which shows the benefits and costs associated with the use of a common property.

-Refer to Common Property II.Suppose the common property becomes privately owned.If the owner behaves competitively,what entrance fee would he charge for the right to use the property?

Question

Common Property II

The following questions refer to the accompanying diagram, which shows the benefits and costs associated with the use of a common property.

-Refer to Common Property II.Suppose the common property becomes privately owned.If the owner behaves competitively,what entrance fee would he charge for the right to use the property?

Quizplus · Accepted Answer

The entrance fee the owner would charge is equal to the difference between the total social cost of the property being used by everyone and the private cost of the owner using the property alone. The total social cost is given by P₂, which is the area under the demand curve from zero to the quantity at which the marginal cost curve intersects the demand curve, plus the area under the marginal cost curve from that quantity to the maximum quantity. The private cost is given by P₁, which is the area under the marginal cost curve from zero to the maximum quantity. Therefore, subtracting P₁ from P₂ gives the entrance fee the owner would charge: P₂ - P₁.

Common Property II The Following Questions Refer to the Accompanying Diagram, Which Shows