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.Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other.Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?
A)The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves.
B)Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed.
C)The optimal quantity will be installed only if the two parties split the cost of installation equally.
D)The optimal quantity will be installed only if Bree pays for the entire installation cost.

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.Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other.Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?
A)The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves. 
B)Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed. 
C)The optimal quantity will be installed only if the two parties split the cost of installation equally. 
D)The optimal quantity will be installed only if Bree pays for the entire installation cost.

Quizplus · Accepted Answer

Since Amit and Bree know each other's preferences, they can privately bargain and come to an agreement on the optimal quantity of street lights to be installed. This would ensure that the installation cost is shared in a way that is agreeable to both parties, leading to the installation of the optimal quantity.

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