How many firefighters will be hired

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Reference no: EM132198933

Question: Suppose 5 people live in a community and are considering acquiring fire protection. The table below illustrates the marginal benefits to each resident at various levels of fire protection.

A. Calculate the social marginal benefit (SMB) for each firefighter employed in the community. Suppose the cost per firefighter is $165 and each resident agrees to cooperate and reveal his/her marginal willingness to pay.

B. How many firefighters will be hired?

C. Is Mike upset at the number of firefighters hired by the group? Explain.

D. Calculate the net total benefit to the group if 3 firefighters were hired. If there is a positive net total benefit to hiring 3 firefighters, why aren't three firefighters the equilibrium?

E. Suppose Joseph lies and claims that he receives no benefit at all from fire protection (he tries to act like Mike). Would that change the answer you calculated in part B? If so, what is the new allocation?

F. Is Joseph better off lying? What are his private net benefits in the alternative circumstances in which he lied and did not lie? Suppose the cooperative scheme was done away with (the group got tired of Joseph's lies). A proportional tax scheme replaced it.

G. What would be the proportional tax rate, ti? Suppose a referendum took place in which successively larger numbers of firefighters were voted on.

H. Identify the largest number of firefighters that would generate a majority.

I. Is Mike now upset at the allocation established in part H? Explain. J. Explain why the political equilibrium is not the efficient level calculated in part B.

Reference no: EM132198933

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