Table 11-2
Consider a small town with only three families,the Jones family,the Harris family,and the Wong family.The town does not currently have any streetlights so it is very dark at night.The three families are considering putting in streetlights on Main Street and are trying to determine how many lights to install.The table below shows each family's willingness to pay for each streetlight.

-Refer to Table 11-2.Suppose the cost to install each streetlight is $400.How many streetlights should the town install to maximize total surplus from the streetlights?
A) 1 streetlight
B) 2 streetlights
C) 3 streetlights
D) 4 streetlights

Question

Table 11-2
Consider a small town with only three families,the Jones family,the Harris family,and the Wong family.The town does not currently have any streetlights so it is very dark at night.The three families are considering putting in streetlights on Main Street and are trying to determine how many lights to install.The table below shows each family's willingness to pay for each streetlight.
 
-Refer to Table 11-2.Suppose the cost to install each streetlight is $400.How many streetlights should the town install to maximize total surplus from the streetlights?
A) 1 streetlight 
B) 2 streetlights 
C) 3 streetlights 
D) 4 streetlights

Quizplus · Accepted Answer

To maximize total surplus, the town should install streetlights until the marginal benefit equals the marginal cost. If the cost to install each streetlight is $400, the town should install streetlights up to the point where the marginal benefit of the last streetlight is at least $400. Based on Table 11-2, this occurs at 3 streetlights.

Table 11-2 Consider a Small Town with Only Three Families,the Jones Family,the