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10. Consider the following two person economy. Each individual's demand for street lighting, a public good, is given below as: Marginal benefit Demand curve (person
10. Consider the following two person economy. Each individual's demand for street lighting, a public good, is given below as: Marginal benefit Demand curve (person 1)MB; = 10 - 0.5Q Marginal benefit/ Demand Curve (person 2): MB; = 20-Q For Q =0 and where Q measures the number of streetlights. The marginal cost of street lighting is given as: MC = 3.5Q. (a) Find the efficient level of public good. Show your work. Ilustrate using a graph. (b) Provide an estimate of the maximum loss in surplus that would arise if no streetlights are provided. Show your work. Illustrate in your graph. (c) The government wishes to intervene and provide an efficient level of street lighting but only has access to distorting taxes. The marginal cost of public funds is $1.25. How many streetlights will the government provide? Explain your answer. Show your work. Illustrate in a graph
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