The cost of one show of fireworks is $2500. There are three neighbors in this neighborhood,...

Transcribed Image Text:

The cost of one show of fireworks is $2500. There are three neighbors in this neighborhood, Anne, Bob, and Carlisle. Their willingness to pay for (additional) shows is... wait, what a coincidence!: exactly as in the first table above, only multiplied by 1000. (E.g., for Anne, 1500, 1200, 1000,...). As you know, if one neighbor buys a show, all neighbors enjoy it. a) What would be the efficient number of shows? b) Anne, Bob, and Carlisle do not talk to each other. (They don't believe in collective action.) The seller of fireworks visits the neighborhood. How many shows will it sell? c) A creative entrepreneur has figured out how to show the fire only to neighbors that pay for the show. (Some light effects of sorts, don't ask me about the details!) In our jargon, the entrepreneur has come up with a way of excluding. The entrepreneur hires you to figure the commercial aspects. You are to decide whether to offer a one-show, two-show, or three-show season tickets (consider only these three possibilities: the entrepreneur will offer only one and the same type of ticket to all neighbors, and at the same price to all). Of course, you need to compute the price of whatever you think is the best option, and your goal is to maximize the entrepreneur's profits. What would be your recommendation? How efficient is the solution (remember: efficiency is not your goal!). GALLONS ANNE 1 $1.5 2 $1.2 3 $1 $.5 $.4 $.2 GALLONS 1 2 3 6 7 FIRM 1 S.3 S.4 S.5 $.6 S.8 S.9 $1.0 BOB $1.1 $.9 $.8 $.6 $.5 $.4 FIRM 2 $.1 $.3 $.4 $.6 $.7 $.9 $1.0 CARLISLE $1.8 $1.3 $1.1 $.9 $.7 $.5 The cost of one show of fireworks is $2500. There are three neighbors in this neighborhood, Anne, Bob, and Carlisle. Their willingness to pay for (additional) shows is... wait, what a coincidence!: exactly as in the first table above, only multiplied by 1000. (E.g., for Anne, 1500, 1200, 1000,...). As you know, if one neighbor buys a show, all neighbors enjoy it. a) What would be the efficient number of shows? b) Anne, Bob, and Carlisle do not talk to each other. (They don't believe in collective action.) The seller of fireworks visits the neighborhood. How many shows will it sell? c) A creative entrepreneur has figured out how to show the fire only to neighbors that pay for the show. (Some light effects of sorts, don't ask me about the details!) In our jargon, the entrepreneur has come up with a way of excluding. The entrepreneur hires you to figure the commercial aspects. You are to decide whether to offer a one-show, two-show, or three-show season tickets (consider only these three possibilities: the entrepreneur will offer only one and the same type of ticket to all neighbors, and at the same price to all). Of course, you need to compute the price of whatever you think is the best option, and your goal is to maximize the entrepreneur's profits. What would be your recommendation? How efficient is the solution (remember: efficiency is not your goal!). GALLONS ANNE 1 $1.5 2 $1.2 3 $1 $.5 $.4 $.2 GALLONS 1 2 3 6 7 FIRM 1 S.3 S.4 S.5 $.6 S.8 S.9 $1.0 BOB $1.1 $.9 $.8 $.6 $.5 $.4 FIRM 2 $.1 $.3 $.4 $.6 $.7 $.9 $1.0 CARLISLE $1.8 $1.3 $1.1 $.9 $.7 $.5

Answer rating: 100% (QA)

To determine the efficient number of shows we need to find the point where the marginal benefit of an additional show equals the marginal cost In this case the marginal benefit is the willingness to p... View the full answer