Answer:

Market Demand Function of Streetlights in a Community

The market demand for streetlights in a community with 25 households can be calculated by adding the demand functions of the 20 households and 5 other households. The demand equation for the 20 households is Q = 2 – 0.001P, where Q is the number of streetlights, and P is the unit price of each streetlight. The demand equation for the 5 other households is Q = 3 – 0.002P, where Q is the number of streetlights, and P is the unit price of each streetlight. The marginal cost of building each streetlight is GHS 45. The market demand for streetlights in the community is equal to the sum of all the individual households’ demand for streetlights, and can be calculated as follows:

a) Market Demand Function Calculation

The market demand function for streetlights in the community is the sum of the demand functions of the 20 households and the 5 other households. Therefore, the market demand function equation for streetlights in the community is:

Market Demand Function = 20Q1 + 5Q2

Where Q1 is the demand function of the 20 households and Q2 is the demand function of the 5 other households.

b) Equilibrium Price and Number of Streetlights

The equilibrium price and number of streetlights in the community can be calculated using the market demand function. The equilibrium price is the price at which the quantity demanded for streetlights is equal to the quantity supplied. The equilibrium quantity is the quantity demanded for streetlights at the equilibrium price. The equilibrium price and quantity can be calculated as follows:

Equilibrium Price = (20Q1 + 5Q2) / (25)

Equilibrium Quantity = (20Q1 + 5Q2) / (P)

c) Willingness to Pay for Streetlights

When the community leader uses the demand functions to determine how much each household is willing to contribute (willingness to pay) towards the first, second, third, etc streetlight, the first light is purchased only when the sum of the individual households’ contributions is equal to or greater than the marginal cost of streetlights. Therefore, the number of streetlights purchased in equilibrium is the number of streetlights for which the sum of the individual households’ contributions is equal to or greater than the marginal cost of streetlights.

Related Questions

  • What is the market demand for streetlights in a community?
  • What is the equilibrium price and quantity of streetlights?
  • What is the marginal cost of building a streetlight?
  • What is the demand equation for the 20 households?
  • What is the demand equation for the 5 other households?
  • What is the willingness to pay for streetlights?
  • How is the market demand calculated?
  • How is the equilibrium price and quantity calculated?
  • What is the total number of households in the community?
  • What is the sum of the individual households’ contributions?