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Kyaw Win Thu
 
Reply Thu 19 Jan, 2017 06:55 am
Assume that the demand for consuming a pure public good is given by p = 20 – q. The total cost for providing the good is 70. Assume also that the price for consuming the good is set at 5. Will there be enough revenues to cover the cost of providing the public good? Show in a figure and explain. Why does this price level not generate an efficient situation?
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nacredambition
 
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Reply Thu 19 Jan, 2017 07:08 am
@Kyaw Win Thu,
Graph the equation of price on the y axis (p) and quantity on the x axis (q)

In the equation p = 20-q put p equal to 5 and solve to obtain q

Compare the value of p times q that you derive from the equation above to the total cost to answer the question.
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