7:23 7 in . assign11.pdf . . . Assignment 11 - ECON 4240 1. Ann, Bob, and Carol are renting a house together and they must decide what speed of internet services they will subscribe to. They can choose any non-negative level of service x, for which they will be charged 6x dollars. Unfortunately, the three roommates do not have the same preferences for internet speed: each one's preferences are described by a utility function of the form u;(x, y;) = yi + r; Inx, where y; denotes dollars available to spend on other goods, and the values of r; for Ann, Bob, and Carol are TA = 4, TB = 8, and rc = 36. Each of the roommates is endowed with 40 dollars. (a) Determine the efficient level of internet speed. (6 points) (b) Determine the Lindahl prices. (8 points) 2. Suppose that the government used the Groves mechanism and undertook a public project. The mechanism generated a surplus s, and the gov- ernment will finance it through a special lump-sum payment of s for each individual, where n is the number of agents. If agents anticipate such a payment, will it affect the truth-revealing property of the Groves mechanism? If so, will agents have incentives to increase or decrease their reported net valuations? (6 points)