-A City of 50,000 People Is Considering Installing a Sewage

Essay

-A city of 50,000 people is considering installing a sewage disposal system. The total fixed cost of the system is $100,000 per month. The marginal benefit to an average city resident from the first thousand gallons of capacity is 1.4 cents. The table shows the relationship between the system's capacity, its total cost, and the marginal benefit received by an average city resident:
a) Draw the marginal social cost curve of the sewage system and the residents' marginal social benefit curve. What is the capacity that achieves maximum net benefit?
b) How much will each person have to pay in taxes to support the efficient capacity level?
c) What is the political equilibrium if voters are well informed?