Suppose Am, B, and C have the following Marginal-Utilities (Demand Curves) for a
public parking area, a local public good.
MUA= 200-Q
MUB=400-2Q
MUC=1,000-Q
Further assume the marginal production cost of the parking area is constantly $30 per
square meter, to be financed by equal tax shares.
a) What is the optimal size of the parking area for each person?
b) If the city votes on the best size based on the majority rule, what will the chosen size
of the parking area be? What is the total cost, what is the cost for each person?
Sample Solution
