Suppose Dexter and Amy are the only members of a community that is trying to determine how much of the public good should be produced.Dexter's (inverse)demand curve is given by P = 50 - 5Q,while Amy's (inverse)demand curve is given by P = 150 - 15Q,where P is price or marginal benefit and Q is the quantity of the good.The marginal cost of producing the public good is constant at $80.Dexter will vote for the efficient quantity of the public good if the price to him is:

Question

Quizplus · Accepted Answer

Dexter will vote for the efficient quantity when his marginal benefit equals the marginal cost. Setting his demand curve equal to the marginal cost: 50 - 5Q = 80, solving gives Q = -6, which is not feasible. Thus, the price to him should be $20 (50 - 5*6 = 20) when Q = 6, which is the efficient quantity considering both demand curves.

Suppose Dexter and Amy Are the Only Members of a Community