A society has two people: 1 and 2. Person 1's true demand (marginal benefit) for a public good is given by P= 60 - 2G and 2's true demand is given by P = 120 -G. the total cost of providing G is TC = G^2.
a. What is the optimal G? Show on a diagram
b. Calculate the total (net) benefit to society of the optimal G, as well as the total net benefit to each parson.
c. Suppose the total cost of providing G rises to TC = 2.5 G^2 , and that government forces both individuals to share the cost of providing G it chooses equality. Show that in this case, given that person 2 tells the truth, person 1 has an incentive to announce that she does not value G at all. Calculate the DWL in this case.