Question

Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film:

Willingness to Pay (Dollars)

Musashi Sean Bob Eric

First film 10 9 8 3
Second film 8 7 6 2
Third film 6 5 4 1
Fourth film 4 3 2 0
Fifth film 2 1 0 0

Within the dorm room, the showing of a movie ( IS OR IS NOT ) a public good.
If it costs $8 to rent a movie, the roommates should rent__________movies in order to maximize the total surplus.
Suppose the roommates choose to rent the optimal number of movies you just indicated and then split the cost of renting equally.
This means that each roommate will pay $__________.

Answer 1

Answer:

1. Inside the dorm room, the movies are Non-Rival which means that one person can watch the movie and it will not diminish the ability of others to watch as well.

Also as they are all in the same dorm, the showing of the movie is Non-Excludable as well because no one can stop the other from watching.

Public good is both Non-Rival and Non-Excludable so the showing of a movie IS a public good.

2.

Musashi   Sean    Bob   Eric   Total Willingness to pay

10   9   8   3   30

8   7   6   2   23

6   5   4   1   16

4   3   2   0   9

2   1   0   0   3

The optimal number of movies that can be rented is dependent on their total willingness to pay. If their Total willingness to pay for the movie is above $8 which is the cost of a movie, then they will get it. From the table, the fifth movie is below the price of $8 so they should rent 4 movies.

3. If they rent 4 movies and there are 4 of them then the cost per person is;

= (8 *4)/4 people

= 24/4

= $8

This means that each roommate will pay $8.