Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film:
Willingness to Pay
(Dollars)
Van Carlos Felix Larry
First film 10 9 6 3
Second film 9 7 4 2
Third film 8 5 2 1
Fourth film 7 3 0 0
Fifth film 6 1 0 0
Within the dorm room, the showing of a moviea public good.
If it costs $8 to rent a movie, the roommates should rentmovies in order to maximize the total surplus.
Suppose the roommates choose to rent the optimal number of movies you just indicated and then split the cost of renting equally This means that each roommate will pay.
Complete the following table with each roommate's total willingness to pay for this many movies and the surplus each person obtains from watching the movies.
Total Willingness to Pay Consumer Surplus
Roommate (Dollars) (Dollars)
Carlos
Felix
Larry
Raphael
In order to split the cost in a way that ensures that everyone benefits, the cost could be divided up based on the benefits each roommate receives. The practical problem with this solution is that each roommates has an incentive tothe value of the movies to him. Suppose they agree in advance to choose the efficient number and to split the cost of the movies equally.
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