Question

Public Good — Cheetah Patrolling Firm Alpha Profit Firm Beta Profit Alpha does not install shutters $800 $200 Alpha installs shutters $700 $500 3 Tarzan and Jane live alone in the jungle and have trained Cheetah to patrol the perimeter of their camp and to harvest fruits. Cheetah can collect 3 pounds of fruit per hour, but Tarzan and Jane would each be willing to give up one hour of patrolling for 2 more pounds of fruit. If Cheetah currently spends 10 hours patrolling and 14 hours picking fruit, is the current allocation of his time efficient? If not, should he patrol more or less?

Answer 1

Since patrolling is a public good and fruit is a private good, optimal production of patrolling is where the sum of MRS equals the marginal rate of transformation (MRT)

Now, sum of MRS of Jane and Tarzan is: 1 + 1 = 2

MRT of Cheetah = 3

Since MRS < MRT, the current allocation is not efficient.

In order to increase efficiency, the Cheetah must patrol more