The City of Econoville Has 100 Residents Who Each Have

Essay

The city of Econoville has 100 residents who each have the identical demand function for lake area: P = 1,000 - 9.95Q. The marginal cost of maintaining lake area is MC(Q) = 1,500 + 5Q. Lake area is a public good. That is, if the city of Econoville provides public access lake area, all of the residents can enjoy the area. If the city of Econoville does not offer public lake area, how much area of lakes will each individual resident maintain on their own? What is the optimal area of public lakes in Econoville? What flat lake tax should Econoville implement on residents for units of lake area the city provides? With this flat tax, what is the total contribution of each resident for the lake?