Suppose there are two consumers in the market for the PUBLIC good, Q: Eddie and Emma....

Suppose there are two consumers in the market for the PUBLIC good, Q: Eddie and Emma.

Their individual demand functions are as follows:

Eddie: p= 24 - q

Emma: p = 18-q

mc=5q

If Eddie and Emma acted independently, how much of the good would each individual purchase in the market?

How many total units would the market purchase without intervention?

Derive the inverse market demand curve.

Solutions

Expert Solution

If Eddie and Emma acted independently then the provision of good is decided by equating price equals to marginal cost.

For Eddie : p = mc

24 - q = 5q

6q = 24

q = 4 Quantity purchase by Eddie will be equal to 4 units.

For Emma : p = mc

18 - q = 5q

6q = 18

q = 3 Quantity purchase by Emma will be equal to 3 units.

Total 7 units of good will be purchase without intervention.

The market demand curve is added vertically in the provision of public good so we add price of both Eddie and Emma for finding market price. P = (P)eddie + (P) emma = 24 - q + 18 - q = 42 - 2q

p = 42 - 2q

2q = 42 - p

q = 21-p/2 ( Inverse market demand curve)

Rahul Sunny answered 1 year ago

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