Sarah and Chris decide to have fireworks to celebrate New Year\'s Eve. There is

Question

Sarah and Chris decide to have fireworks to celebrate New Year's Eve. There is no way for one of them to exclude the other from viewing the fireworks. It is also true that one of them viewing the fireworks will not reduce the enjoyment of the other one. Sarah values the benefit from the fireworks at MB-50-Q and Chris's benefit from the fireworks is MB=100-2Q, where Q is the quantity of fireworks. The cost of each unit of fireworks is 60$. 4. Fireworks are a public good because they are and be (a) This means that their provision will than the social optimum. (b) The marginal social benefit equation will be MsB And the marginal cost of each firework is

Explanation / Answer

Fireworks are a public good because they are non rival and no exculsivity (Definition of Publlic Goods says they hold properties of non exculsivity and non rivalness)

Provision of Public goods is always less than the Social Optimum due to the problem of free riding as no one wants to pay the cost for public good and they can have postiive utility out of it without paying anything for public goods as each player tries to maximize his/her utility with minimum cost.

Marginal Social benefit for public good equas to the summation of MB for all the consumers of it therefore in this case MSB = MB for S+ MB for C = 150-3Q

In case of Public good MB= MC= 150-3Q =60

HEnce Sarah and Chris will buy in equillibrium a quantity = 150-3Q = 60

3Q = 90 that is Q=30

And Chris will spend 100-2Q = 100-60 = 40 and Sarah will spend 50 - Q = 20

For ChrisTotal Spend will be 40*60 =2400 & For Sarah is 20*60 =1200

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