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Scenario: Private and External Benefits
A small community finds that tidy lawns and neighbourhoods provide both private and external benefits.They determine that the marginal private benefit (MPB)of lawns can be represented by the equation MPB = 50 - 0.5Q,where Q is the number of hours spent on keeping lawns tidy.The marginal private cost (MPC)of such lawn upkeep is represented by the equation MPC = 0.5Q,where Q is again the number of hours engaged in lawn upkeep.
-(Scenario: Private and External Benefits)Use Scenario: Private and External Benefits.The community estimates the marginal benefit to external parties from lawn upkeep to be $15.Given this information,what is the socially optimal amount of lawn upkeep for this community?
A) 0 hours
B) 45 hours
C) 50 hours
D) 65 hours

Question

Quizplus · Accepted Answer

The socially optimal amount of lawn upkeep occurs where the marginal social benefit (MSB) equals the marginal private cost (MPC). MSB is the sum of MPB and the external benefit, so MSB = (50 - 0.5Q) + 15. Setting MSB equal to MPC (0.5Q) and solving for Q gives 65 hours.

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