Question 1

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell.  Suppose 10 shells have been fired off. What is the marginal cost of firing off one more shell?

Accepted Answer

The marginal cost of each shell is $10, regardless of how many shells have been fired off.

Question 2

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.  Suppose the town can purchase land for the park at a cost of $8 per acre. The optimal park size would be ________ acres.

Accepted Answer

The optimal size occurs where the marginal cost of an additional acre equals the marginal benefit of an additional acre. The public's willingness to pay for the 8ᵗʰ acre is $2 + $3 + $3 = $8. Thus, both the marginal benefit and the marginal cost of the 8ᵗʰ acre are $8.

Question 3

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.  Suppose the city receives a grant that pays one half of the cost of each acre the city buys. If the cost of land is $28 per acre, the optimal park size is

Accepted Answer

The optimal size occurs where the marginal cost of an additional acre equals the marginal benefit of an additional acre. With the grant, the effective cost of land would be $14 per acre, which is equal to the public's marginal benefit of the 6ᵗʰ acre.

Question 4

Suppose that the marginal cost of providing public television to one more viewer is zero. If a public television station sets the price of public television equal to its marginal cost, then:

Accepted Answer

If the station sets price equal to zero, its total revenue will equal zero.

Question 5

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.  The public is willing to pay $14 for the ________ acre of parkland.

Accepted Answer

The public's willingness to pay for the 4ᵗʰ acre is $4 + $9 + $7 = $20.

Question 6

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell.  If Towneburg's fireworks display has 20 shells, then the size of the display is:

Accepted Answer

The marginal cost of each shell is $10, and the marginal benefit of the 20ᵗʰ shell is $10 × 20 = $200. Since the marginal benefit of the 20ᵗʰ shell is greater than the marginal cost of the 20ᵗʰ shell, 20 shells is smaller than optimal.

Question 7

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.  Suppose the town can purchase land for the park at a cost of $20 per acre. The optimal park size would be ________ acres.

Accepted Answer

The optimal size occurs where the marginal cost of an additional acre equals the marginal benefit of an additional acre. The public's willingness to pay for the 4ᵗʰ acre is $4 + $9 + $7 = $20. Thus, both the marginal benefit and the marginal cost of the 4ᵗʰ acre are $20.

Question 8

For many pure public goods like fireworks displays, weather forecasts, and television broadcasts the marginal cost of serving one more consumer is ________, and the optimal quantity of the public good occurs when ________.

Accepted Answer

Because pure public goods are highly nonrival, the marginal cost of serving one more consumer is zero. The optimal quantity of the public good, therefore, occurs when the marginal benefit of the public good is zero.

Question 9

There are 20 residents in the village of Towneburg.  The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell.  Collectively, the residents of Towneburg would be willing to pay ________ for the 25ᵗʰ shell, and the marginal cost of the 25ᵗʰ shell is ________.

Accepted Answer

Each resident's willingness to pay for the 25th shell is $0, and the marginal cost of each shell is $10, regardless of how many shells have been fired off.

Question 10

Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it.  
What is the most a contractor can charge to pave the driveway and still be assured of being hired by at least one of them?

Accepted Answer

Since Lane values a paved driveway at $1,500, this is the most a contractor could charge.

Question 11

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell.  What is the horizontal intercept of the village's demand curve for fireworks?

Accepted Answer

The horizontal intercept is 25 because no citizen would want more than that even if the price were $0.

Question 12

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.  If the park is currently 2 acres, and land costs $20 per acre, the town should:

Accepted Answer

The optimal size occurs where the marginal cost of an additional acre equals the marginal benefit of an additional acre. The public's willingness to pay for the 4ᵗʰ acre is $4 + $9 + $7 = $20, which is exactly equal to the marginal cost of an acre of parkland. Thus, the town should buy two additional acres.

Question 13

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell.  Collectively, the residents of Towneburg would be willing to pay ________ for the 10ᵗʰ shell, and the marginal cost of the 10ᵗʰ shell is ________.

Accepted Answer

The collective willingness to pay for the 10ᵗʰ shell is $600 = $30 × 20, and the marginal cost of each shell is $10, regardless of how many shells have been fired off.

Question 14

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell.  Cheap Charlie is one of Towneburg's 20 residents. While Charlie enjoys fireworks as much as the next Towneburger, when the fireworks fund-raising campaign kicks off, he claims to hate them. Cheap Charlie is trying to:

Accepted Answer

Charlie is hoping the other 19 residents will cover the cost of the fireworks display so that he can enjoy its benefit without paying any of the cost.

Question 15

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell.  What is the vertical intercept of the village's demand curve for fireworks?

Accepted Answer

The demand curve for a public good is found by vertically summing individual demand curves. Given that there are 20 residents, the vertical intercept is $50 × 20 = $1,000.

Question 16

The marginal cost of providing another viewer with access to HBO is zero. Since only people who pay for HBO can watch it:

Accepted Answer

The marginal cost of providing another viewer with access to HBO is zero. Since people have to pay for access to HBO, we know that the marginal benefit of providing another viewer with access is greater than zero. Since marginal benefit is greater than marginal cost, less than the socially optimal number of people will have access to HBO.

Question 17

Suppose a private monopolist is supplying a good that is nonrival but excludable. The market demand for the good is P = 24 - 3Q. If the marginal cost of providing this good is zero, but the firm charges $18, then the monopolist will provide ________ units, and the efficient number of units is ________.

Accepted Answer

From the demand curve, we can see that at a price of $18, the monopolist will sell 2 units, but the optimal level of output occurs when the marginal benefit of the good is equal to zero (its marginal cost). From the demand curve, we can see that this occurs when Q = 8.

Question 18

Consider a town with three residents.  The residents' demand curves for various acres of a public park are shown below.  The public is willing to pay $14 for the ________ acre of parkland.

Accepted Answer

The public's willingness to pay for the 6ᵗʰ acre is $3 + $6 + $5 = $14

Question 19

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell.  Collectively, the residents of Towneburg would be willing to pay ________ for the 24ᵗʰ shell, and the marginal cost of the 24ᵗʰ shell is ________.

Accepted Answer

Given the demand curve (P = 50 - 2Q), we can see that each resident would be willing to pay $2 for the 24ᵗʰ shell. Thus, collectively, the residents would be willing to pay $2 × 20 = $40 for the 24ᵗʰ shell. The marginal cost of each shell is $10, regardless of how many shells have been fired off.

Question 20

According to the textbook, the private provision of television programming may not be socially optimal because:

Accepted Answer

Private companies typically pay for programming by airing commercials. Thus, the incentive is to choose the programs that maximize viewership rather than the programs that are the most highly valued.

Quiz 14: Public Goods and Tax Policy

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. Suppose the town can purchase land for the park at a cost of $8 per acre. The optimal park size would be ________ acres.

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. Suppose the city receives a grant that pays one half of the cost of each acre the city buys. If the cost of land is $28 per acre, the optimal park size is

Suppose that the marginal cost of providing public television to one more viewer is zero. If a public television station sets the price of public television equal to its marginal cost, then:

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. The public is willing to pay $14 for the ________ acre of parkland.

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. Suppose the town can purchase land for the park at a cost of $20 per acre. The optimal park size would be ________ acres.

For many pure public goods like fireworks displays, weather forecasts, and television broadcasts the marginal cost of serving one more consumer is , and the optimal quantity of the public good occurs when .

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. If the park is currently 2 acres, and land costs $20 per acre, the town should:

The marginal cost of providing another viewer with access to HBO is zero. Since only people who pay for HBO can watch it:

Suppose a private monopolist is supplying a good that is nonrival but excludable. The market demand for the good is P = 24 - 3Q. If the marginal cost of providing this good is zero, but the firm charges $18, then the monopolist will provide units, and the efficient number of units is .

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. The public is willing to pay $14 for the ________ acre of parkland.

According to the textbook, the private provision of television programming may not be socially optimal because: