Suppose that a public bike path can be constructed at a marginal cost of $1000 *

Question

Suppose that a public bike path can be constructed at a marginal cost of $1000 * Q, where Q is the miles of the bike path. Charles and Michael have the following demand for bike paths:

P(c) = 8000 - 4000Q

P(m) = 4000 - 1000Q

A) What is the socially optimal amount of miles for the bike path?

B) Draw the individual demand curves, the social marginal benefit curve and the social marginal cost curve in the same graph. As before, be as detailed as possible by properly identifying the curves, axis, intercepts, and intersection of curves, if any. (Assume that streetlights are a private good)

Explanation / Answer

I can help you with first part of this question:

P(c) = 8000 - 4000Q

P(m) = 4000 - 1000Q

So

P(c)+P(m)=12000-5000Q

So socially optimal amount of miles of bike path,

P(c)+P(m)=Marginal cost

12000-5000Q=1000Q

6000Q=12000

Q=2

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.