Figure 5-8 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 5-8 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 5-8.What is the optimal quantity of street lights to install?

Question

Figure 5-8  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 5-8 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 5-8.What is the optimal quantity of street lights to install?

Quizplus · Accepted Answer

The optimal quantity of street lights to install is where the market demand intersects with the marginal cost curve. From the graph, we can see that this occurs at a quantity of 6 street lights. Both Amit and Bree are willing to pay up to $120 for 6 street lights, which would cover the total cost of installation ($720). Therefore, installing 6 street lights would benefit both homeowners and be economically efficient.

Figure 5-8 Amit and Bree Are the Only Two