(Table: Marginal Benefit from Additional Streetlights) Dave and Art live in a new housing development and would like to have streetlights installed.The table Marginal Benefit from Additional Streetlights shows Dave's and Art's individual marginal benefit of different numbers of streetlights.Suppose that the marginal cost of installing a streetlight is $6.If Dave had to pay for streetlights on his own, how many streetlights would there be?
A)0
B)1
C)2
D)3

Question

Quizplus · Accepted Answer

Dave would choose to install streetlights up to the point where his marginal benefit is equal to the marginal cost. At 2 streetlights, Dave's marginal benefit is $12 and the marginal cost is $6. Therefore, Dave would be willing to pay for 2 streetlights but not for a third one (where his marginal benefit would be only $4). Therefore, the optimal choice for Dave is 2 streetlights.

(Table: Marginal Benefit from Additional Streetlights) Dave and Art Live