Suppose the state is trying to decide how many miles of a very scenic river it should preserve. There are 2,500 people in the community, each of whom has an identical inverse demand function given by P = 25 - 0.1(Q), where Q is the number of miles preserved, a public good, and P is the per mile price he or she is willing to pay for Q miles of preserved river. The total cost function for river preservation is TC = 4,000(Q).
(a) Why is river preservation considered a public good?
(b) What is the competitive market equilibrium price and quantity for miles of river preservation?
(c) What is the socially efficient outcome?
(d) What is the value of net benefits at the socially efficient equilibrium?