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 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 to have 4 street lights installed?
A) $1,500 
B) $1,800 
C) $2,700 
D) $7,200

Quizplus · Accepted Answer

Bree's willingness to pay for 4 street lights is the vertical distance between the quantity axis and her demand curve at 4 street lights, which is $1,800. Both Amit and Bree's willingness to pay for 4 street lights are above the marginal cost of $1,500, so it is efficient to install 4 street lights. Installing any additional street lights would result in the cost being greater than the combined willingness to pay of both homeowners, so installing 4 street lights is the best choice.

Figure 5-16 Amit and Bree Are the Only Two