Consider two consumers with the following demand functions for a public good:
where pi is the price that i is willing to pay for quantity G.
a. What is the optimal level of the public good if the marginal cost of the public good is $25?
b. Suppose that the marginal cost of the public good is $5. What is the optimal level?
c. Suppose that the marginal cost of the public good is $40. What is the optimal level? Should the consumers make an honest statement of their demand functions?