a) State the condition for the Pareto optimal provision of a public good. Interpret the condition. b) Consider agent A with (inverse) demand curve for the public good PA = 60 - 20A and agent B with inverse demand PB = 90 - 5QB, where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p's] c) Describe the Vickrey-Clarke-Groves (VCG) Mechanism, provide examples and discuss
a) State the condition for the Pareto optimal provision of a public good. Interpret the condition. b) Consider agent A with (inverse) demand curve for the public good PA = 60 - 20A and agent B with inverse demand PB = 90 - 5QB, where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p's] c) Describe the Vickrey-Clarke-Groves (VCG) Mechanism, provide examples and discuss
Chapter16: Public Goods And Public Choice
Section: Chapter Questions
Problem 1.1P: (Optimal Provision of Public Goods) Using at least two individual consumers, show how the market...
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c) Describe the Vickrey-Clarke-Groves (VCG) Mechanism, provide examples and discuss problems with the VCG mechanism
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