Consider an economy with three people and two goods: private good (x) and public good (y). Suppose that marginal rate of transformation is 1. (one unit of private good is needed for the production of one unit of public good). The utility functions of the individuals are given below. U₁ = 2y¹/2 + x₁ U₂ = 4y¹/2 + X₂ U₂ = 6y¹/2 + x₂ What is the optimal level of public good?

Consider an economy with three people and two goods: private good (x) and public good (y). Suppose that marginal rate of transformation is 1. (one unit of private good is needed for the production of one unit of public good). The utility functions of the individuals are given below. U₁ = 2y¹/2 + x₁ U₂ = 4y¹/2 + X₂ U₂ = 6y¹/2 + x₂ What is the optimal level of public good?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.7P

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