Suppose 100 citizens each derive marginal benefit from submarines according to the function MB = 10 - Q. If subs cost $100 each to produce, what is the efficient quantity of submarines?
What will be an ideal response?
The market demand is SMB = 1000 - 100Q. Setting this equal to the MC of 100 yields a quantity of 9. If the cost is shared equally, each citizen pays $1 for the ninth submarine, which they each value at $1.
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