What would be the level of the lighthouse

Reference no: EM132198848

Question: Consider a community consisting `of five fishers denoted by i, ii, iii, iv, and v. The marginal benefit for each fisher depends on the size of the lighthouse G;

MBi= 50-5G; MBii=40-4G; MBiii=30-3G;MBiv=20-@G; and MBv= 10-G.

You may intepret the marginal benefits as demand functions. The marginal cost of producing the lighthousr facility is MC= 45

(i) Draw a diagram to show the marginal benefit functions for each person and the marginal cost. Indicate important points on the diagram.

(ii) A lighthouse could be built privately. Which person would have the incentive to provide a lighthouse? And by how much?

(iii) If a lighthouse is to be built as a community project, what would be the socially marginal benfit of a federal lighthouse program? In other words, what is the efficient size of the lighthouse, at which the aggregate wilingness to pay for a small increment exactly matches with the cost of providing a small increment?

(iv) Suppose the tax system in place is an equal share system. This means each person will pay one fifth of the marginal cost, or tax=45/9. What would be the ideal point for each region?

(v) What would be the level of the lighthouse according to majority rule?

Reference no: EM132198848

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