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Suppose a housing community includes 10 identical households. It is costly to maintain the sidewalks in the community, but sidewalks are a public...
Suppose a housing community includes 10 identical households. It is costly to maintain the sidewalks in the community, but sidewalks are a public good. Suppose each household faces an individual demand of P= 60-2Q for each block. The cost of maintaining sidewalks is given by C=100Q.
a) If the residents have to pay to maintain their own sidewalks, how many blocks of sidewalk will each household choose to maintain on their own?
b) What is the socially efficient amount of sidewalk for the community as a whole.
c) Suppose the community were able to charge a flat fee to the households to fund the maintenance of the sidewalks. How much should this fee be per household and what is the total cost of maintaining the socially efficient amount of sidewalks?
d) Draw the individual marginal benefit curves, overall marginal benefit and the marginal cost curve. Identify and calculate the total social benefit of the public good.