Consider an economy with three people and two goods: private good (x) and public good (y). Suppose that marginal rate of transformation is 1. (one unit of private good is needed for the production of one unit of public good). The utility functions of the individuals are given below: U₁ = 2y¹/2 + x₁ U₂ = 4y¹/2 + x₂ U₂ = 6y¹/² + x3 What is the optimal level of public good?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Consider an economy with three people and two goods: private good (x) and public good (y). Suppose that marginal rate of
transformation is 1. (one unit of private good is needed for the production of one unit of public good). The utility functions of the
individuals are given below:
U₁ = 2y¹/2 + x₁
U₂ = 4y¹/2 + x2
U₂ = 6y¹/2 + x3
What is the optimal level of public good?
Transcribed Image Text:Consider an economy with three people and two goods: private good (x) and public good (y). Suppose that marginal rate of transformation is 1. (one unit of private good is needed for the production of one unit of public good). The utility functions of the individuals are given below: U₁ = 2y¹/2 + x₁ U₂ = 4y¹/2 + x2 U₂ = 6y¹/2 + x3 What is the optimal level of public good?
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