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11 February, 13:20

Suppose Margaret and Thomas are the only two homeowners in the neighborhood. Margaret's demand for clean streets is Q = 50 - 2P. Thomas's demand for clean streets is Q = 40 - P. What is the socially optimal number of clean streets if the marginal cost of cleaning them is $35?

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  1. 11 February, 16:01
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    20 is the socially optimal number

    Explanation:

    In this question, we are asked to calculate the socially optimal number of clean streets given the marginal cost of cleaning them.

    To solve this problem, we employ a mathematical approach as follows:

    Market demand = Sum of Individual demand

    Magaret demand = p = (50-Q) / 2 = 25-0.5Q

    Thomas demand = P = 40-Q

    Market demand = 25-0.5Q + 40-Q = 65-1.5Q

    MC = 35

    Socially optimal number = MC = Market demand

    35 = 65-1.5Q

    30 = 1.5Q

    Q = 20
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