Suppose there are only two individuals in society. Person A's demand curve for mosquito control is given by:
[Note: let "_" denote a subscript]
q_n = 100 - p
for person B, the demand curve for mosquito control is given by:
q_b 200 - p
A. Suppose mosquito control is a pure public good; that is, once it is produced, everyone benefits from it. What would be the optimal level of this activity if it could be produced at a constant marginal cost of $120 per unit?
B. If mosquito control were left to the private market, how much might be produced? Does your answer depend on what each person assumes the other will do?
C. If the government were to produce the optimal amount of mosquito control, how much will this cost? How should the tax bill for this amount be allocated between the individuals if they are to share it in proportion to benefits received from mosquito control?
The solution provides all answers needed to solve all steps of the economics exercise involving mosquito control.