Some people claim that the right option is c, some think d Could you please help figure out why? Anna and Bob are the only residents of a small town. The town currently funds its fire department solely from the individualcontributions of these two residents. Each of the two residents has a utility function over private goods x and total number of firemenM, of the form: u(x, M) = 2 ln x + In M. The total provision of firemen hired, M , is the sum of the number hired by each of thetwo persons: M = Mª + M². Ann and Bob both have income of 200 each, and the price of both the private good and a fireman is1. They are limited to providing between 0 and 200 firemen. For the purposes of this problem, you can treat the number of firemen asa continuous variable (it could be man-years). Consider the setup from Question 2. The government proposes an alternative, market-based solution. They charge each citizen theprice p for every, firemen stationed at the local fire station. Then, the price is being set at a level p* at which each individual demandsthe socially optimal number of firemen.What is the price p* ? Assuming that the cost of each fireman is equal to 1, would the government be able to finance the firemen usingonly the payments from the two citizens?The price is p*1/2, which is enough to finance the socially optimal number of firemen.а.b. The price must be p* = 0, which is not enough to finance the socially optimal number of firemen.The price is p* = 1, which is enough to finance the socially optimal number of firemen.С.d. The price is p*1/2, which is not enough to finance the socially optimal number of firemen.%D

for every firemen stationed at the local fire station. Then, the price is being set at a level p* at which each individual demands ally optimal number of firemen. the price p* ? Assuming that the cost of each fireman is equal to 1, would the government be able to finance the firemen using e payments from the two citizens? The price is p* = 1/2, which is enough to finance the socially optimal number of firemen. The price must be p* = 0, which is not enough to finance the socially optimal number of firemen. The price is p* = 1, which is enough to finance the socially optimal number of firemen. The price is p* = 1/2, which is not enough to finance the socially optimal number of firemen.

for every firemen stationed at the local fire station. Then, the price is being set at a level p* at which each individual demands ally optimal number of firemen. the price p* ? Assuming that the cost of each fireman is equal to 1, would the government be able to finance the firemen using e payments from the two citizens? The price is p* = 1/2, which is enough to finance the socially optimal number of firemen. The price must be p* = 0, which is not enough to finance the socially optimal number of firemen. The price is p* = 1, which is enough to finance the socially optimal number of firemen. The price is p* = 1/2, which is not enough to finance the socially optimal number of firemen.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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