1. Mike, Rosie and Shobber live in separate houses on a dark and windy road. The following represent marginal benefits for streetlights:

MB _Mike = 200-2Q _M

MB _Rosie = 100- _QR

MB _Shobber = 100-2Q _S

where Q _M is the amount of streetlights consumed by Mike, Q _R is the amount of streetlights consumed by Rosie, and Q _S is the amount of streetlights consumed by Shobber. The Mayor of their town considers streetlights a public good and is tasked with purchasing the optimal number of streetlights from Boone's Light Shop. Boone's is willing to sell streetlights for $150 per light.

1. In what sense, if any, do street lamps qualify as a public good? What is the relationship (i.e. greater, lesser, or equal) between Q _M , Q _R and Q _S possibly when the Mayor installs the lights ? From where?

2. How many street lamps should the mayor buy ? From where? Suppose the Mayor is able to implement a pricing scheme to charge users for lighting services.
3. How much should each individual be charged? Does the tax revenue cover the total cost of providing the optimum number of street lights?

Answer rating: 100% (QA)

Streetlights can be considered a public good because they provide benefits to everyone in the community regardless of whether they directly consume th... View the full answer