3. A society consists of 3 identical individuals who derive utility from a publicgood. The public good can be provided at a constant marginal cost of 2. Letx, denote the level of public good provision by i, where i=1,2,3. Let X-x1 + x2 + x3 be the total provision. The net benefit enjoyed by individual i fromproviding x, units of the public good is given by4 In X-2x,U(x,x)where i=1,2. Is the total provision X under individual optimisation higheror lower than the socially optimal level of provision Xº? Explain the intuitionfor your result.4. If the price of a factor of production rises, a profit maximising firm might usemore of that factor. Is this true or false? Explain your answer by drawing com-parison for consumer choice for a Giffen good.

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3. A society consists of 3 identical individuals who derive utility from a public good. The public good can be provided at a constant marginal cost of 2. Let x, denote the level of public good provision by i, where i 1,2,3. Let X- x1 + x2 + x3 be the total provision. The net benefit enjoyed by individual i from providing x, units of the public good is given by U(x,, X) -4 ln X-2x, where i=1,2. Is the total provision X under individual optimisation higher or lower than the socially optimal level of provision Xº? Explain the intuition for your result.

3. A society consists of 3 identical individuals who derive utility from a public good. The public good can be provided at a constant marginal cost of 2. Let x, denote the level of public good provision by i, where i 1,2,3. Let X- x1 + x2 + x3 be the total provision. The net benefit enjoyed by individual i from providing x, units of the public good is given by U(x,, X) -4 ln X-2x, where i=1,2. Is the total provision X under individual optimisation higher or lower than the socially optimal level of provision Xº? Explain the intuition for your result.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4. Two people, A and B, are deciding whether to put effort into producing a public good or not. Each person, i, can either choose no effort (s; = 0) or yes effort (s; 1). The total public good produced is G = max{SA, SB}. The cost of doing no effort is 0. The cost of doing yes effort is 1.5. The payoff to a player is the total public goods provided (G) minus her personal costs. i. Given a choice by player B, SB, write down player A's utility from choosing no effort. Given a choice by player B, SB, write down player A?s utility from choosing yes effort.
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11 Consider a public good, G, that is shared by Consumer A and B. Each can purchase G at the price of $20 per unit. A's marginal benefit from this public good is given by MBA=50-G. If A thinks B is getting 10 units of G, then A's optimal contribution into G will be ? units. On the other hand, if A thinks B is getting 25 units of G, then A's will be optimal contribution into G will be ？units