Question

1. A single community is comprised of just three voters i = {1, 2, 3}, each of whom have differing tastes for public parks, as described by the following three demand functions.

q₁ = 100 – 2p

q₂ = 110 – 2p

q₃ = 126 – 2p  

(a)        Public parks are a local public good. Assuming that the marginal cost to society,

mc^s, of providing each unit of park space is $90, what is the socially optimal quantity of parks? Provide a graph with your answer. Please show all of your work. 3pt

(b)        Assume that the price tag for each unit of park is split evenly across the community

members so that the marginal cost to each member is just $30. At this price, what is

each member’s optimal quantity of park space? Is there unanimity across the three individuals regarding the desired level of park space? 3pt

(c)        Using Lindahl pricing (aka Lindahl taxing), what price schedule would guarantee unanimous agreement across all three members and would also yield a socially optimal outcome? Please show your work. 3pt

2. Please refer back to Q1 when answering the following questions.

(a)        Draw each individual’s demand curve for park space. Then calculate each person’s

consumer surplus at each of the three optimal quantities. Please show your work. 3pt

                        Hint: remember that each person must pay $30 per unit of park space consumed.

(b)        Using the consumer surplus calculations from Q2(a), fill in the following table by

assigning a rank to each person’s park space options. 3pt    

                       

Rank	i = 1	i = 2	i = 3
1st
2nd
3rd

(c)        In a political environment with direct democracy through majority rule, which of the

three park space alternatives will consistently win a series of pair-wise votes? 3pt

d) Is the winning option aligned with what would be predicted by the median voter

            theorem? Is this outcome socially optimal? Explain why or why not. 3pt  

Answer 1

Dear Student,

We are comparing two well known fast food outlets i.e. McDonald's and Burger King located in Hillybourne. Since both this outlets are located in the same area and offer relatively similar type of products, it becomes easy to compare them. Moreover, the type of customers walking into these outlets are almost the same.

The operational difference with these two outlets are a direct result of the store management and operational policies followed by them. While McDonald's strive to reduce the waiting time of customers by half, comparatively its difficult to reach the same kind of delivery time when there current timing is close to 3-4 mins. Another thing is the in store infrastructure, in McDonalds a lot of processes are automated while in Burger King they are primarily done by the operator, there by taking up more time. The workspace is also different in both of them. In case of McDonalds, the work area is small making it easier for an employee to observe and help out others while in case of Burger King they had the broiler and board system to create the sandwiches. Also, the employees in case of McDonalds were relatively younger and were often assigned different jobs to help them learn different things within the outlet. It can be noted that the work culture and employee satisfaction was higher in case of McDonalds from their appraisal reports. This could be result of better store management, good training and providing good employee benefits to both part-time and full-time workers to ensure their commitment to their work. The managers were offered better salary at McDonalds while older employees were allowed to take sabbatical after 10 years of service.

The case mentions that for the stated time period, McDonalds had a market share of 35% while Burger King had a share of 11%. While Burger King initially promised to provide customized products, it became difficult for them to offer them because of increasing volume and limited employees. Also, the number of outlets for McDonalds is higher for both USA as well as outside the USA. This means that McDonalds as a brand has become more popular world wide and their strive to reduce waiting time while offering better customer service is resulting in creating better customer experiences for the brand.

It is said that a large part of how well a company does is a direct result of how motivated its employees are. In case of Burger King, where employees received poor performance reviews and less salary compared to McDonalds, there is lower motivation to perform better. Hence, they are facing a stiff competition from McDonalds.