Suppose That there are only two fishermen, Zach and Jacob, who fish along a certain coast. They would each benefit if lighthouses were built along the coast where they fish. The marginal cost of building each additional light-house is $ 100. The marginal benefit to Zach of each additional lighthouse is 90 – Q, and the marginal benefit to Jacob is 40 – Q , where Q equals the number of lighthouses.
a. Explain why we might not expect to find the efficient number of lighthouses along this coast.
b. What is the efficient number of light-houses? What would be the net benefits to Zach and Jacob if the efficient number were provided?