There are 30 inhabitants on an island. They have only two goods at their disposal: a private
Question:
There are 30 inhabitants on an island. They have only two goods at their disposal: a private and a public one. The inhabitants can be divided into three equal numbered groups (10 persons in each group). The utility functions of each group are given by the following:
Group1: U 1 (x, y) = 0.01x + ln(y),
Group2: U 2 (x, y) = 100x + 100y and
Group3: U 3 (x,y) = 10x + 10y,
Where x stands for the private good and y is the quantity of public good supplied on the island. The cost of the private good is $1 per unit, while for the public good it is $1020 per unit.
What is the Pareto-efficient level of public good on the island?
a. y = 1
b. y = 10
c. y = 100
d. y = 1000
e. None of the remaining answers is correct.
Automation Production Systems and Computer Integrated Manufacturing
ISBN: 978-0132393218
3rd edition
Authors: Mikell P.Groover