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C.Demand Estimation for Public Goods (15 points)

Please read "Free Riders and Hidden Preferences", and how to derive the aggregate demand curve for a public good (Figure 18.3. Optimal Amount of a Public Good), and then complete the following problem:

Assume that those students and nonstudents have revealed their group demands for junior college education, a public good, as follows:

Q = 1,500 - 0.25P, (Student demand)

Q = 4,000 - P, (Nonstudent demand)

where Q is the number of students educated per year and P is the price of tuition at the local 2-year junior college.

1.Write the student demand curve and the nonstudent demand curve, expressing price as a function of quantity.

2.Graph the student demand curve and the nonstudent demand curve. Use the quantity data as the x-axis.

3.Calculate the aggregated demand for college education.

4.Assuming, MC = 1,000 + Q, the marginal cost of college education, determine the socially optimal amount of publicly supported college education (hint: Demand = Supply).