Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Some analysts see the North Atlantic Treaty Organization (NATO) as a provider of a public good called common security to its members. Suppose we measure

Some analysts see the North Atlantic Treaty Organization (NATO) as a provider of a public good called "common security" to its members. Suppose we measure security in terms of amounts of military force, units of which we represent by the variable G. Units of this military good must be jointly consumed by three member governments, A, B, and C, which have the following respective utility functions over G and total dollars left over for spending on all other goods (x):

UA(m, x) = 4ln(G) + x

UB(m, x) = 32[ln(4G)] + x

UC(m, x) = -G2 + x

where ln() is the natural logarithm function, G is the amount of jointly consumed military goods, and x is dollars spent on all other goods. Note that in the above, government C attaches a negative utility to military goods (i.e., government C is a probably a very pacifistic government).

Because of how x is defined, the dollar price per unit of x is fixed at px = $1.

Given that military goods are jointly consumed, what must be the optimal amount of military force G that NATO should provide its members, and what price should it charge government C?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Microeconomics

Authors: N Gregory Mankiw

9th Edition

035713348X, 9780357133484

More Books

Students also viewed these Economics questions