Chapter . Chapter 17
Step 1
Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.
Question
A residential community has 100 residents who are concerned about security. The accompanying table gives the total cost of hiring a 24-hour security service as well as each individual resident’s total benefit.
| Quantity of security guards | Total cost | Total individual benefit to each resident |
|---|---|---|
| 0 | $0 | $0 |
| 1 | 150 | 10 |
| 2 | 300 | 16 |
| 3 | 450 | 18 |
| 4 | 600 | 19 |
Security services are nonexcludable: as soon as security is provided to the community, every resident benefits from it. Security services are nonrival: if one resident enjoys protection, this does not diminish any other resident’s ability to enjoy the service. For further review see section, “Providing Public Goods.”
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Step 2
Question
In the box below calculate the marginal cost, the individual marginal benefit for each resident, and the marginal social benefit.
| Quantity of security guards | Total cost | Marginal cost | Total individual benefit to each resident | Individual marginal benefit | Marginal social benefit |
|---|---|---|---|---|---|
| 0 | $0 | -- | $0 | -- | -- |
| 1 | 150 | $IJaWHrT39D4= | 10 | $Pz2PEfhsNWI= | $ffGky/F3JjU= |
| 2 | 300 | IJaWHrT39D4= | 16 | yBhAQ+3VvjM= | Y4X9gzy3nmw= |
| 3 | 450 | IJaWHrT39D4= | 18 | XvVM00l89Is= | ygJZKffxRWs= |
| 4 | 600 | IJaWHrT39D4= | 19 | 0VV1JcqyBrI= | b0g0iQ1whKk= |
The marginal cost is calculated as the change in total cost. The individual marginal benefit is calculated as the change in total individual benefit to each resident. Marginal social benefit is simply the individual marginal benefit multiplied by 100, since there are 100 residents. For further review see section, “How Much of a Public Good Should be Provided.”
The marginal cost is calculated as the change in total cost. The individual marginal benefit is calculated as the change in total individual benefit to each resident. Marginal social benefit is simply the individual marginal benefit multiplied by 100, since there are 100 residents. For further review see section, “How Much of a Public Good Should be Provided.”
In the box below calculate the marginal cost, the individual marginal benefit for each resident, and the marginal social benefit.
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Step 3
Question
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Step 4
Question
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