To illustrate the concept of net social benefit, consider a scenario where the cost (C) of producing and broadcasting 'Min's Music' is \$40,000. Given that the total social benefit is \$75,000, the net social benefit is calculated as \$75,000 - \$40,000 = \$35,000. Since this result is positive, it confirms that producing the program is socially beneficial.

Example Calculation of Net Social Benefit for Min's Music

A net social benefit for producing 'Min's Music' exists provided the cost of production and broadcasting (C) is not excessively high. Since there are no external costs involved, the social cost is identical to the private production cost. With a total social benefit valued at \$75,000, the net social benefit is determined by the formula: Net Social Benefit = \$75,000 - C.

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The private provision of 'Min's Music' illustrates the conflict between a private broadcaster's profitability and social efficiency. The Pareto-efficient outcome of 10,000 listeners is achieved at a price of zero, which maximizes social benefit at \$75,000 (all of which is consumer surplus). However, at this price, the broadcaster receives no revenue and incurs a loss equal to the production cost (C), making them unwilling to supply the program. Conversely, charging a price can make the program profitable, but only under certain cost conditions. For example, with a high production cost of \$40,000, the broadcaster cannot cover expenses at any price. However, with a lower cost of \$30,000, a profitable price can be set, but this leads to an inefficient outcome with a smaller audience and a significant reduction in total benefits for listeners.

The Private Provision Problem for Min's Music

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Microeconomics

To address the challenge of financing radio broadcasting as a public good, two primary models emerged in the early years of the medium. The dominant model, adopted in most countries, was government provision, where broadcasting services were controlled by the state, financed through general taxation, and offered to the public for free. [8] An alternative approach, which became prominent in the United States, involved commercial stations funded by advertising revenue, where firms paid to sponsor programs or air advertisements to reach large audiences. [1, 5, 11]

Financing Models for Early Radio Broadcasting

The profitability of supplying 'Min's Music' is contingent on its production cost (C). A comparison shows that if the cost is \$40,000, a private provider cannot achieve profitability at any price point. In contrast, if the cost is lower at \$30,000, the provider can earn a profit by charging a fee, with maximum profit achieved at a price of \$7.50. This illustrates that while a private entity might be willing to supply the program under favorable cost conditions, it does so at a price that causes a substantial loss of benefits for listeners.

Provider Profitability Analysis for Min's Music at Different Costs

The private provision of excludable public goods faces significant challenges. Firstly, profitability may be unattainable for private firms if production costs are too high. Secondly, even when a good is provided for a profit, the price will exceed the marginal cost, resulting in an inefficiently small consumer base and a loss of social surplus. Thirdly, the presence of competition can also undermine provision; a profitable service might attract rivals who draw away customers, reducing demand and potentially making the original service financially unviable, as illustrated by the 'Min's Music' example.

Challenges in Private Provision of Excludable Public Goods

The analysis of the private provision of 'Min's Music' is incomplete without considering competition. If the program were to become profitable, it would likely attract rival providers with similar offerings. This competition could erode the audience base and reduce demand, potentially rendering 'Min's Music' financially unsustainable.

Impact of Competition on the Viability of 'Min's Music'

Calculating the Net Social Benefit for Min's Music

When the price for the 'Min's Music' program is increased, the audience size is restricted, causing the total social benefit to fall. The reduction in benefits experienced by the listeners is particularly pronounced, declining more rapidly than the overall social benefit. This dynamic illustrates the trade-off between generating revenue for the provider and maximizing the welfare of the audience.

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