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Consider two consumers with the following demand functions for a public good: P1=10- 1/10 G P2= 20-1/10 G Where pi is the price that i
Consider two consumers with the following demand functions for a public good:
P1=10- 1/10 G
P2= 20-1/10 G
Where pi is the price that i is willing to pay for a quantity G. a. What is the optimal level of the public good if the marginal cost of the public good is $25? b. Suppose that the marginal cost of the public good is $5. What is the optimal level? 2 c. Suppose that the marginal cost of the public good is $40. What is the optimal level? Should the consumers make an honest statement of their demand functions?
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