What is the amount of flood control which will be purchased

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Reference no: EM13796873

Suppose the residents of Toadhop live on the Quabache River which is a river prone to flooding. Suppose there are 1000 (type A) people who value flood control more than 1000 (type B) people.

One type A citizens demand is QD = 100 - P

One type B citizens demand is QD = 50 - P

Where Q measures the quality of flood control and P represents the value that one person places on flood control. The marginal cost for each quality unit of flood control is $100,000.

a. If the citizens of Toadhop do not work together, what is the amount of flood control which will be purchased? Explain.

b. If the citizens of Toadhop gather for a town hall meeting to find the socially optimal level of flood control, and they are successful, they will pick Q equal to what value? Explain.

Reference no: EM13796873

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