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Scenario: Private and External Benefits
A small community finds that tidy lawns and neighborhoods provide both private and external benefits. They determine that the marginal private benefit (MPB) of lawns can be represented by the equation MPB = 50 - 0.5Q, where Q is the number of hours spent on keeping lawns tidy. The marginal private cost (MPC) of such lawn upkeep is represented by the equation MPC = 0.5Q, where Q is again the number of hours engaged in lawn upkeep.
-(Scenario: Private and External Benefits) Look at the scenario Private and External Benefits. How many hours of lawn upkeep will occur in this community, and what will be the marginal private benefit of such upkeep?
A) 50 hours; $50
B) 45 hours; $20
C) 50 hours; $25
D) 100 hours; $50

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Quizplus · Accepted Answer

The equilibrium occurs where MPB = MPC. Setting 50 - 0.5Q = 0.5Q gives Q = 50 hours. Substituting Q = 50 into MPB gives a marginal private benefit of $25.

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