Ann, Bob, and Claire all value a good that is non-rival in consumption. Denote units of...

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?

Solutions

Expert Solution

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

Rahul Sunny answered 2 years ago

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