Answer to Question #252818 in Economics of Enterprise for Econ

Question

Refer to the graph provided below. You are deciding the optimal number of flower bulbs to plant in your front yard. Your house is by a well-travelled road and people enjoy seeing the flowers in your yard as they pass by. The relevant marginal cost and benefit curves are given below. 

12

14

16

450

350

10

 

 

a.      What is the optimal number of bulbs for you to plant if you do not consider the people passing by your house? 

        

b.         What is the socially optimal number of bulbs for you to plant? 

       

 

c.          By how much would the government need to subsidize you per bulb to assure that you will plant the optimal number of flower bulbs? 

            

 

 

Answer 1

Solution:

a.). The optimal number of bulbs for you to plant if you do not consider the people passing by your house = 350

This is the point where: Private MB = Private MC

This is the most efficient point that indicate equilibrium is attained.

 

b.). The socially optimal number of bulbs for you to plant = 450

This the point where: Social MB = Private MC

The quantity produced is where marginal private cost equals marginal social benefit, indicating market equilibrium.