Find the efficient number of lighthouses

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Reference no: EM13741996

There are 2 fishermen, Zach and Jacob, who fish along a certain coast. Both would benefit if lighthouses were built along the coast where they fish. The marginal cost of building each additional lighthouse is $25. The demand curves for lighthouses are:

Zach: P = 10 – .1Q Jacob: P = 20 - .1Q

a. Explain why lighthouses are considered to be public goods.

b. Find the marginal social benefit of building 20 lighthouses and explain why it’s not the efficient level.

c. Find the efficient number of lighthouses?

d. Sketch the results to part c (demand curves, MC curve, efficient level, etc.)

e. Suppose the marginal cost is $40. What is the optimal level of lighthouses?

Reference no: EM13741996

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