Janice (J) and Kelly (K) like fireworks displays. The marginal benefit curve for Janice is MBj=9-q. Kelly's MBk=27-3q. q is the total amount of fireworks consumed. The cost of every unit of fireworks is 4. Any fireworks one purchases can be enjoyed by the other at no cost to the other.
a. What is the efficient number of fireworks for this society?
b. Suppose the government decides to provide the efficient level of output found above. To pay for the fireworks, the government taxes J and K, using a Lindahl pricing scheme. What are the Lindahl prices?
c. If J and K pay their Lindahl prices, what is the consumer surplus for J and K, respectively? What is the total consumer surplus for this society from consuming fireworks?
d. Instead of their Lindahl prices, suppose J and K are each charged 2 per unit. How does this change the total consumer surplus for the society?