1. Efficient regulation. Suppose the state is trying to decide how many miles of a very scenic river it should preserve. There are 1000 people in the community, each of whom has an identical demand function given by
Q = 40−0.4P
where Q is the number of miles preserved and P is the per-mile price he or she is willing to pay for Q miles of preserved river. (Hint: You will need to derive the market (aggregate) demand curve for a public good.)
(a) If the marginal cost of preservation is $25, 000 per mile per year, how many miles would be preserved in an efficient allocation?