Use the following to answer question:
-(Table: Marginal Benefit from Additional Streetlights)Use Table: Marginal Benefit from Additional Streetlights.Suppose that the marginal cost of installing a streetlight is $6.What is the socially optimal number of streetlights in the neighborhood?
A)1
B)2
C)3

Question

Use the following to answer question: 
-(Table: Marginal Benefit from Additional Streetlights)Use Table: Marginal Benefit from Additional Streetlights.Suppose that the marginal cost of installing a streetlight is $6.What is the socially optimal number of streetlights in the neighborhood?
A)1 
B)2 
C)3

Quizplus · Accepted Answer

The socially optimal number of streetlights occurs where the marginal benefit equals the marginal cost. From the table, we can see that the marginal benefit of the first streetlight is $10, the marginal benefit of the second streetlight is $8, the marginal benefit of the third streetlight is $6, and the marginal benefit of the fourth streetlight is $4. Therefore, the socially optimal number of streetlights is 3, since the marginal benefit of installing a fourth streetlight is less than its marginal cost of $6.

Use the Following to Answer Question