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5. (10 pts.) There are three consumers of a public good. The marginal value of the public good for the consumers are as follows: Consumer
5. (10 pts.) There are three consumers of a public good. The marginal value of the public good for the consumers are as follows: Consumer 1: P1 = 50 - ZQ Consumer 2: P2 = 150 ~ Q Consumer 3: P3 = 100 ~ 0.5Q where Q measures the number of units of the good and P is the value in dollars. The marginal cost of the public good is 80. a) What is the economically efficient level of production of the good? Illustrate your answer on a clearly labeled graph. (4 pts.) b) Assume that each consumer does not know the existence of other consumers. What does each consumer demand in a competitive market? (3 pts.) c) Assume that consumers know the existence of other consumers as well as others' demand functions. What does each consumer demand in equilibrium? (3 pts.)
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