(Table: Marginal Benefit from Additional Streetlights) Dave and Art live in a new housing development and would like to have streetlights installed.The table Marginal Benefit from Additional Streetlights shows Dave's and Art's individual marginal benefit of different numbers of streetlights.Suppose that the marginal cost of installing a streetlight is $6.What is the socially optimal number of streetlights in the neighborhood?
A)1
B)2
C)3
D)4

Question

Quizplus · Accepted Answer

The socially optimal number of streetlights is where the marginal cost equals the sum of the marginal benefit of all individuals in the neighborhood. In this case, the marginal cost of installing a streetlight is constant at $6 per streetlight. The sum of Dave's marginal benefit and Art's marginal benefit for the first three streetlights is 18+16+14=48. At four streetlights, the total marginal benefit would only be 17, which is less than the marginal cost of $6. Therefore, the socially optimal number of streetlights is three.

(Table: Marginal Benefit from Additional Streetlights) Dave and Art Live