Suppose that a small company is thinking of putting plants in their lobby for em

Question

Suppose that a small company is thinking of putting plants in their lobby for employees to view and enjoy. Since the plants are to be viewed by employees, the plants are non-excludable (it is infeasible to move a plant each time a specific individual walks by) and non-rival in consumption (if one worker looks at the plant, it does not prevent another from doing so as well). The company employs three workers: Robin, Greg, and Karl. The company is think ing about buying up to three plants, and wants to know how much workers would enjoy each plant. For Robin, the first plant has a benefit of $17 per day, the second plant has a benefit of $13 per day, and the third plant has a benefit of $8 per day For Greg, the first plant has a benefit of $12 per day, the second has a benefit of S10 per day, and the third has a benefit of $6 per day. For Karl, the first plant has a benefit of $8 per day, the second has a benefit of S5 per day, and the third has a benefit of $2 per day Given that no one else will see the plants, no one else values the plants in the lobby What is the marginal social benefit of the first plant? What is the marginal social benefit of the second plant? S 37 What is the marg inal social benefit of the third plant? $ 16

Explanation / Answer

Solution :

Since, social marginal benefit is the summation of individual marginal benefits derived, we can find the social marginal benefit of each plant by summing the individual/private marginal benefits for that plant. Denoting Marginal benefit by MB,

So, we can conclude the final answer as :

1) Marginal social benefit of first plant = $37

2) Marginal social benefit of second plant = $28

3) Marginal social benefit of third plant = $16

MB of 1st plant MB of 2nd plant MB of 3rd plant Robin 17 13 8 Greg 12 10 6 Karl 8 5 2 Social 17 + 12 + 8 = 37 13 + 10 + 5 = 28 8 + 6 + 2 = 16

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