Question

Use your demand schedule for the public good, determined in problem 1, and the following supply schedule to ascertain the optimal quantity of this public good.

Price (\()	$Q_d$
19	1
16	2
13	3
10	4
7	5
4	6
2	7
1	8

Price (\))	Qs
19	10
16	8
13	6
10	4
7	2
4	1
2	-
1	-

Short answer

The optimal quantity of the public good is four units.

Step-by-step solution

Meaning of optimal quantity of the public good

The point where the collective demand for the public good is equal to the supply of a public good gives the equilibrium state. At this point, there is no excess demand or excess supply. The market is balanced with no wastage of resources and maximum surplus possible.

The price at which this happens is the equilibrium price. This is the price where the collective willingness to pay matches the marginal cost of producing the final unit. The corresponding quantity level becomes the optimal level of production.

Explanation for the answer

Combining the collective demand and supply schedules as shared below, we can see that at four units of public good, the collective willingness to pay ($10) matches the cost of producing the additional final unit ($10). Hence the optimal quantity is four units.

Price($)	Qd	Qs
19	1	10
16	2	8
13	3	6
10	4	4
7	5	2
4	6	1
2	7	-
1	8	-