Question

Consumer A's marginal benefit for good X is MB=10-2X, and consumer B's marginal benefit is MB=8-X. The marginal cost for producing X goods is MC=6+3X.
a Graph of the marginal benefits, market marginal benefits, and marginal cost curves of goods X for public goods. Find balanced production, the payment price of each consumer in a manner.
b Graph the marginal benefits, market marginal benefits, and marginal cost curves of goods X for private goods. Find balanced production, the payment price of each consumer in a manner.

Answer 1

a) The market marginal benefit curve for or the market demand curve for public goods is the vertical summation of individual marginal benefits curve and it gives the price society is willing to pay for a given quantity of public good. The balanced position or the equilibrium is obtained when the market demand curve is equal to the marginal cost curve.

If Good X is a Public Good:

Consumer A's marginal benefit for good X is MB=10-2X,

consumer B's marginal benefit is MB=8-X.

Market Marginal Benefit Curve: MBa + MBb => MBm = 18-3X

The marginal cost for producing X goods is MC=6+3X.

Equilibrium: 18-3X = 6+3X => 18-6 = 6X => 6X= 12 => X=2

Payment Price = 6+3(2) =6+6 = 12

b) The market marginal benefit curve for or the market demand curve for private goods is the horizontal summation of individual marginal benefits curve and it gives the price each individual is willing to pay for a given quantity. The balanced position or the equilibrium is obtained when the market demand curve is equal to the marginal cost curve.

If Good X is a Private Good: Market demand is the sum of Xa and Xb that both consumer's are willing to buy at given price and marginal benefits give their willingness to pay.

There is no equilibrium in the given market