Figure 5-16

Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights, and the marginal cost of installing the street lights.
-Refer to Figure 5-16.How much is Bree willing to pay per street light to have 4 street lights installed?
A)$1,500
B)$1,800
C)$2,700
D)$7,200

Question

Figure 5-16
  
Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights, and the marginal cost of installing the street lights.
-Refer to Figure 5-16.How much is Bree willing to pay per street light to have 4 street lights installed?
A)$1,500 
B)$1,800 
C)$2,700 
D)$7,200

Quizplus · Accepted Answer

To determine how much Bree is willing to pay per street light when installing 4 street lights, we need to look at the horizontal axis where it intersects with the demand curve for the quantity of 4 street lights. This point is between $1,500 and $2,100, so we interpolate to find the exact amount. The distance between $1,500 and $2,100 is $600, and the distance between 4 and 3 street lights is 1, so the additional cost of adding 1 street light is $600. Therefore, Bree's willingness to pay for the fourth street light is $2,100 - $600 = $1,500, which is less than the marginal cost of installation at $1,800. Therefore, the best choice is for both homeowners to install 3 street lights since both are willing to pay $1,800 per street light for that quantity, and it is below the marginal cost of installation.

Figure 5-16 Amit and Bree Are the Only Two Homeowners on an Only