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2026 PEA Q21

AA and BB are neighbours; the snow plough cannot clear in front of AA's house without clearing in front of BB's. Inverse demands are PA=12−qP_A = 12 - q, PB=8−qP_B = 8 - q. Marginal cost is 1616. What is the efficient level of provision?

Reveal answer and solution

Answer

C

Solution

  1. 1

    Since the service is non-rival between AA and BB, vertical summation gives

  2. 2

    the aggregate marginal willingness to pay:

  3. 3
    PA+PB  =  (12−q)+(8−q)  =  20−2q. P_A + P_B \;=\; (12 - q) + (8 - q) \;=\; 20 - 2q.
  4. 4

    Efficiency requires ∑Pi=MC\sum P_i = \text{MC}:

  5. 5
    20−2q  =  16⟹q∗  =  2. 20 - 2q \;=\; 16 \quad\Longrightarrow\quad q^* \;=\; 2.

Answer structure / marking notes

For a public good, demands are summed vertically (prices summed at each quantity), not horizontally.

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Content note

Imported from public/resources/isi/msqe/solutions/pea/2026/ISI_MSQE_PEA_2026_Solutions.tex. Question wording is retained from the available local TeX source; incomplete option blocks or ambiguous source status are flagged for review.