Four roommates are planning to spend the weekend in their dorm room watching old

Question

Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film: Within the dorm room, is the showing of a movie a public good? Why or why not? If it costs $8 to rent a movie, how many movies should the roommates rent to maximize total surplus? If they choose the optimal number from part (b) and then split the cost of renting the movies equally, how much surplus does each person obtain from watching the movies? Is there any way to split the cost to ensure that everyone benefits? What practical problems does this solution raise? Suppose they agree in advance to choose the efficient number and to split the cost of the movies equally. When Judd is asked his willingness to pay, will he have an incentive to tell the truth? If so, why? If not, what will he be tempted to say? What does this example teach you about the optimal provision of public goods?

Explanation / Answer

*Note that the marginal cost of a movie is never less than 0, so no one is ever opposed to seeing a movie they're just indifferent to (and opposed to paying for) it. a)Yes it is a public good, everyone must pool money together to purchase it, it benefits everyone, however they do not get equal surplus from it. b) It cost 8 dollars to rent a movie. They will continue renting movies until Willingness to Pay >Cost. adding there willingness to pay we see Movie1= 7+5+3+2=17 Movie2=6+4+2+1=13 Movie3= 5+3+1+0=9 Movie4= 4+2+0+0=6 ---Since 6

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.