Suppose that two individuals, Jon and David, form a community

Question # 00786462 Posted By: dr.tony Updated on: 12/09/2020 08:39 AM Due on: 12/09/2020
Subject Education Topic General Education Tutorials:
Question
Dot Image

Suppose that two individuals, Jon and David, form a community and  would  like to construct a communal fort that would protect them from  attacks.  They both consume good X, a private good, and the protection of the fort, P. One unit of good X costs 1 unit of currency, and one unit of P costs 2 units of currency. Both Jon and David have an income of 100 and a utility function of the form:
 

U = log(Xi) + 2 × log(PJ + PD)
The budget constraint for each is given by:
Xi + 2 × Pi = 100
 

(a)  Find the amount of protection Jon will provide as a function of  how  much David provides, and explain why the relationship is the way it  is.
(b) How much protection will be privately provided in this case?
(c)  Explain the economic intuition behind this amount, and compare  it to  the socially optimal amount without solving for the socially  optimal  amount.

Dot Image
Tutorials for this Question
  1. Tutorial # 00786376 Posted By: dr.tony Posted on: 12/09/2020 08:40 AM
    Puchased By: 2
    Tutorial Preview
    The solution of Suppose that two individuals, Jon and David, form a community...
    Attachments
    Suppose_that_two_individuals,_Jon_and_David,_form_a_community.ZIP (18.96 KB)

Great! We have found the solution of this question!

Whatsapp Lisa