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.Amy will vote for the efficient quantity of the public good if the price to her is:

Question

Quizplus · Accepted Answer

To find the efficient quantity of the public good, we set the marginal benefit equal to the marginal cost:

50 - 5Q = 150 - 15Q
10Q = 100
Q = 10

So the efficient quantity is 10 units of the public good. To find the efficient price, we substitute Q = 10 into one of the demand curves:

P = 50 - 5(10) = 0 or P = 150 - 15(10) = 0

So the efficient price is $60. Since Amy will only vote for the efficient quantity, her price must be equal to the efficient price of $60, so the answer is C.

Suppose Dexter and Amy Are the Only Members of a Community