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cjr4808 cjr4808
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3 weeks ago
Determining How Much of a Public Good to Supply

Jack and Jill both own businesses on a deserted road and both need a security guard. Once a security guard is hired, the guard will be able to protect both businesses despite who hires the security guard. The table shows the price Jack and Jill are willing to pay for each hour of protection.
Quantity (hours of protection)Jill's willingness to pay (dollars per hour)Jack's willingness to pay (dollars per hour)
17674
27472
37270
47068
56866
Suppose the security guard has a constant marginal cost of $138 dollars an hour. What is the optimal number of hours of security guard services?

▸ 1 hours

▸ 4 hours

▸ 0 hours

▸ 3 hours
Textbook 

Macroeconomics


Edition: 3rd
Authors:
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jd1044jd1044
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3 weeks ago
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More solutions for this book are available here
4 hours

To find the total demand for security guard services, a public good, add the individual demand curves vertically; that is, add the price each consumer is willing to pay for each quantity of the public good.
Quantity (hours of protection)Jill's willingness to pay (dollars per hour)Jack's willingness to pay (dollars per hour)Total demand
1767476+74=150
2747274+72=146
3727072+70=142
4706870+68=138
5686668+66=134
The optimal quantity is where supply meets demand.
In this example, supply is constant at $138, so the optimal quantity is 4 hours of protection.
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cjr4808 Author
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3 weeks ago
Thanks for your help!!
Mcb
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Yesterday
Correct Slight Smile TY
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2 hours ago
Helped a lot
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