Suppose there are two cities (1 and 2) and two types of citizens based on individual preferences for public goods (z): high-demand types (a) with individual demand given by P=30-2z and low-demand types (type B) with individual demand given by P=26-2z, wherePdenotes willingness to pay.

In each city there are currently 100 citizens, but their compositions differ:

City 1: 80a , 20 type B

City 2: 20 a, 80 type B

The marginal social cost per-unit ofzis given by c=$400. Assume public good costs areshared equallyamong all city residents and that public good provision (z) is the only factor that may induce citizens to move to new cities if unhappy with current levels.

a) (2 points) Using the median voter method, what is the optimal level of z in each city?

b) (4 points) What is the consumer surplus for type A and type B citizens living in City 1? (Hint: diagrams help!)

c) (4 points) Assume per-capita costs per unit ofzremain constant if only one citizen changes cities. What is themaximum amountone type B citizen in City 1 would pay to move to City 2?