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)
Antonio Dmitri Jake Nick
First film 10 9 8 3
Second film 8 7 6 2
Third film 6 5 4 1
Fourth film 4 3 2 0
Fifth film 2 1 0 0

Within the dorm room, the showing of a movie a public good. If it costs $12 to rent a movie, the roommates should rent movies 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 $ .

The roommates would rent 3 movies to maximise total surplus

Each roommate would pay $9

The roommates would watch the films that yields a positive consumer surplus

Consumer surplus is the difference between the willingness to pay of a consumer and the price of the good.

Consumer surplus = willingness to pay – price of the good

Willingness to pay is the highest amount a consumer is willing to pay for a good or service

Consumer surplus is positive if willingness to pay exceeds the price of the movie and it is negative when the price of the good exceeds the willingness to pay of the consumers

Total willingness to pay for the first movie = 10 + 9+ 8+ 3 = 30

Total willingness to pay ($30) exceeds the price of the movie ($12). Consumer surplus is positive. The first movie will be rented

Total willingness to pay for the second movie =  8+ 7+ 6+ 2 = 23

Total willingness to pay ($23) exceeds the price of the movie ($12). Consumer surplus is positive. The second movie will be rented.

Total willingness to pay for the third movie = 6+ 5+ 4+ 1 = 16

Total willingness to pay ($16) exceeds the price of the movie ($12). Consumer surplus is positive. The third movie will be rented.

Total willingness to pay for the fourth movie =   4+ 3+ 2+ 0 = 9

Total willingness to pay ($9) is less than the price of the movie ($12). Consumer surplus is negative. The fourth movie will be rented.

Only three movies would be rented.

Total cost of the 3 three movies = $12 x 3 = $36

Cost to each roommate if the bill is split equally = $36 / 4 = $9

For more information on willingness to pay, please check :

c

explanation:

1. c

2. b

3. a

4. c

5. a

6. b

7. c

8. c

9.b

10. d

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