Question

The demand curve for a public park for two consumers who represent society is given by:

𝑃 = 150 − 𝑄𝐷1, 𝑃 = 250 − 𝑄𝐷2

Graph the two demand curves and show the marginal social benefit curve for this public

park. If the marginal cost of providing the park was €240, what would the optimum

provision of this park be? Explain why any quantity above or below this amount would

represent a less than efficient allocation.

Answer 1

If 𝑃 = 150 − 𝑄𝐷1, 𝑃 = 250 − 𝑄𝐷2, then Qd1 = 150 - P, Qd2 = 250 - P.

Total demand is Qd = Qd1 + Qd2 = 400 - 2P.

MSB = Qd2 = 250 - P or P = 250 - Q.

If the marginal cost of providing the park was €240, then:

MSB = MC,

250 - Q = 240,

Q = 10 units.