The Lighthouse 2

Here is a picture of the costs and benefits for the lighthouse.

Costs and Benefits of the Lighthouse

Because the cost of the lighthouse is indivisible, the cost curves for the lighthouse are rather special. Long run marginal cost is always zero, and long run average cost is a downward-sloping hyperbola. In place of the "demand" curve we have the marginal benefits curve. Remember, in a competitive market, demand is identical to marginal benefit. Since it is impossible to charge those who benefit from the lighthouse, the term "demand" is not quite appropriate here.