Four individuals who live around a camp are hosting separate chirstmas parties, and all are considering purchasing aerial fireworks; any fireworks purchased will be set off over the camp, and thus will be visible to everyone at all of the parties. Karl’s marginal benefit from having an additional package of fireworks (which includes the benefit to himself and all of his guests) is given by MBK = 300 – 5Q, Jessica is given by MBJ = 600 – 10Q, Lara’s is given by MBL = 900 – 15Q, and Emily’s is given by MBE = 1,200 – 20Q, where Q is the total number of packages of fireworks set off at all parties. Each package of fireworks costs $800 (i.e., MC = 800). How many packages of fireworks will actually be set off if it is left to the free market? How much deadweight loss will result if this activity is left to the free market (as in part b)?

The equilibrium output level is achieved where Marginal Benefits = Marginal Cost Individual marginal…

Answered: Four individuals who live around a camp…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Four individuals who live around a camp are hosting separate chirstmas parties, and all are considering purchasing aerial fireworks; any fireworks purchased will be set off over the camp, and thus will be visible to everyone at all of the parties. Karl’s marginal benefit from having an additional package of fireworks (which includes the benefit to himself and all of his guests) is given by MB_K = 300 – 5Q, Jessica is given by MB_J = 600 – 10Q, Lara’s is given by MB_L = 900 – 15Q, and Emily’s is given by MB_E = 1,200 – 20Q, where Q is the total number of packages of fireworks set off at all parties. Each package of fireworks costs $800 (i.e., MC = 800).

How many packages of fireworks will actually be set off if it is left to the free market?
How much deadweight loss will result if this activity is left to the free market (as in part b)?

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