Question

1. The following functions show the relationship between price, costs and the number of dogs receiving a rabies vaccine.

MPB = 90 – 4Q; MSB = 80 - 4Q; MC: P = 30 + Q;

1. Assume the rabies vaccine is $35 on the market. Will consumers get the rabies vaccine for their dogs?
2. From the societal perspective, should consumers get the rabies vaccine for their dogs?

Answer 1

Q	MPB	MSB	MC	P=MR
0	90	80	30	35
5	70	60	35	35
10	50	40	40	35
15	30	20	45	35
20	10	0	50	35
25	-10	-20	55	35

A. As the MSB and MPB is greater than the cost associated at price of $35, the consumers would get the rabies vaccine for their dogs.

B. From the social perspective, the rabies would yield in positive externality and hence consumers should get their dogs vaccinated with rabies