In: Economics
Ann, Bob, and Claire all value a good that is non-rival in consumption. Denote units of that good (or the service provided by it) by the variable G.
Assume that each of them values G according to the function MV=8-G.
a. What function describes the vertical summation of Ann's, Bob's, and Claire's individual marginal value functions?
b. If units of G can be produced at a constant marginal cost of 4 per unit, what is the efficient quantity of G to be provided to Ann, Bob, and Claire?
A) vertical summation is when at a given output, summation of the willingness to pay for all individuals
Thus MV = MV_i = 3*(8-G) = 24-3G
Thus function : MV = 24-3*G
b) MC of G = 4
At efficient output level
MV = MC
24-3*G = 4
20/3 = G* , thus answer is G* = 20/3