"Discussion Questions" Number 11

question 18

Essay

"Discussion Questions" number 11
Suppose that there are only two fishermen,Zach and Jacob, who fish along a certain coast. They would each benefit if lighthouses were built along the coast where they fish. The marginal cost of building each additional lighthouse is $100. The marginal benefit to Zach of each additional lighthouse is 90 − Q , and the marginal benefit to Jacob is 40 − Q, where Q equals the number of lighthouses.
a. Explain why we might not expect to find the efficient number of lighthouses along this coast.
b. What is the efficient number of lighthouses? What would be the net benefits to Zach and Jacob if the efficient number were provided?
-Refer to "Discussion Questions" number 11 .How does your answer change if the marginal cost of building each additional lighthouse increases to $150?

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Definitions:

Efficient Markets

A concept that asserts that financial markets are "informationally efficient," meaning that prices of securities reflect all available information at any given time.

Opportunity Cost

The cost of choosing one alternative over another, typically representing the benefits you could have received by taking a different action.

Alternative Use

The potential other applications or purposes for which a resource, asset, or investment could be utilized instead of its current use.