Imagine that there are two people who own houses on a lake and that cleanliness of the lake is a public good from which they share benefits. The marginal cost of improved cleanliness and the marginal value (or marginal willingness to pay) of each person for improved cleanliness are as described in the following table:
Levels of Improvement
MC MVA MVB
1 $10 $42 $14
2 $15 $36 $12
3 $20 $30 $10
4 $25 $24 $ 8
5 $30 $18 $ 6
6 $35 $12 $ 4
What is the optimal number of levels of improvement?