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iew History Bookmarks Window Help 65% ," Tue 6:2; 0 courses.aplia.com AttemptS Keep tne Hignest:76 2. Voluntary contributions toward a public good David and Robert are considering contributing toward the creation of a water fountain. Each can choose whether to contribute $100 to the water fountain or to keep that $100 for a new suit. Since a water fountain is a public good, both David and Robert will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.75 of benefit. For example, if both David and Robert choose to contribute, then a total of $200 would have been contributed to the water fountain. So, David and Robert would each receive $150 of benefit from the water fountain, and their combined benefit would be $300. Since a new suit is a private good, if David chooses to spend $100 on a new suit, David would get $100 of benefit from the new suit and Robert wouldn't receive any benefit from David's choice. However, if Robert chooses to contribute $100 to the water fountain, David would still receive the $75 of benefit from Robert's generosity. In other words, if David decides to keep the $100 for a new suit and Robert decides to contribute the $100 to the public project, then David would receive a total benefit of $100+$75-$175, Robert would receive a total benefit of $75 and their combined benefit would be $250 The following table shows the combined benefits of David and Robert. As described previously, if both David and Robert contribute to the water fountain, their combined benefit would be $300; this is shown in the upper left cell of the table. Similarly, if David keeps the $100 for a new suit and Robert contributes to the project, their combined benefit would be $250; this is shown in the lower left cell of the table. Fill in the right-hand column of the table. Robert's Decision Contribute Don't Contribute Contribute $300 David's DecisionExplanation / Answer
1. When Robert doesn't contribute and David Contribute:
Robert get benefit of 100 which he spend on new suit and $ 75 i.e. 0.75 of $ 100 which David spend on public good. So, total benefit received by Robert = 100 + 75 = $ 175
David gets benefit of $ 100 only.
Total benefit = $ 175 + 100 = $ 275
2. When Robert and David do not contribute:
Both will get benefit of $ 100 which they spend on new suit. So, total benefit = $ 200
3. When both David and Eric contribute to the water fountain.
4. David benefit when Robert doesn't contribute: 0.75 of David investment X 100 = $ 75
5. David benefit when Robert and he don't contribute: $ 100
6. Not to contribute
7. Not to contribute
8. The free rider problem
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