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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