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In: Economics

Use the following information to answer the next four questions: Consider two municipalities, A and B,...

Use the following information to answer the next four questions: Consider two municipalities, A and B, in the same province. Residents in municipality A enjoy attending outdoor music concerts (a public good) held in their public park. Each resident in municipality A has a marginal benefit curve for these concerts given by MB=10-2Q, where Q is the number of outdoor concerts. There are 100 residents in this municipality. Residents in municipality B do not enjoy outdoor music concerts (they are more into sports activities). Each resident in municipality B therefore receives no marginal benefit for these concerts. There are 400 residents in municipality B. Each municipality has the same constant marginal cost of providing these concerts given by MC=125. Suppose outdoor music concerts are typically financed by municipalities with distortionary taxation and that the marginal cost of public funds is MCF=1.6 (assume with no tax exporting).

44. The efficient number of concerts in municipality A is _______________.

45. The efficient number of concerts in municipality B is _______________.

46. Now suppose the two municipalities amalgamate. As a result assume that each of the two municipalities is required to have the same number of concerts and that the number in each municipality is the average of the number before amalgamation. The total loss in net social welfare resulting from the requirement that the two municipalities provide the same number of concerts is $ ___________________.

47. Suppose that instead of financing their concerts with distortionary taxation each of the municipalities (before their amalgamation) had the option of shifting all their tax burden (of financing their concerts) to other jurisdictions through tax exporting. Under this scenario, the number of concerts provided by municipality A (before its amalgamation) would have been ____________.

Please answer with work!!

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Rahul Sunny answered 8 months ago
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