Answer to Question #294604 in Economics for monica chicken

Question

The marginal cost of improving water quality in a local community swimming pool is given by a certain equation. MC = 10 + Q. Frank and Brad are the only frequent users of this swimming pool. The equations below represent their MWTP for improved swimming pool water quality.  

  

Frank           MWTPT = 25 – 2Q

Brad              MWTPE = 10 – 2Q 

 

1. Determine the aggregate MWTP equation for improved swimming pool water quality. 

2. Graph the aggregate MWTP and the MC equations in the same diagram.  

3. Determine the socially efficient level of water quality. 

4. What is the cost of providing the socially efficient level of water quality? 

5. How much are Frank and Brad each willing to pay for the socially efficient level of water quality? Is total willingness to pay enough to cover the total cost of maintaining water quality at the socially efficient quality? Suppose total WTP was enough to cover the cost. Is it likely that Frank and Brad could agree to maintain the water quality at this level? 

Answer 1

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