Public Goods Economics Question:
There are 1,000 people in the town of Wilmington, who want to
have a fireworks show on the 4th of July. Willingness to pay for
each of the 100 individuals is P = 5.52 – 0.01Q, where Q is the
amount of exploding rockets that shoot off during the show. The
cost of each exploding rocket is $20.
1. How many rockets should the town of Wilmington purchase for
its fireworks show?
2. How much should the town of Wilmington charge each individual
in order to maximize consumer surplus?
3. Why is it unlikely that the optimal amount of rockets will be
purchased no matter what system of payment is used?