4. Answer all parts (a)-(b) of this question. (a)Suppose two people, person 1 and person 2, want to produce a playground to share between them. The value of the playground of size s to each person is √s, where s is the number of pounds spent building it. Show that under voluntary contributions the size of the playground is and that the efficient size is 1. (b) A toy factory operates in a perfectly competitive market. Setting up and constructing a factory costs 2 million. The marginal cost of the qth toy is equal to 10 for all q ≤ 100 and equal to for all q> 100. 1000 (i) What are average total costs? (ii) What is short-run supply? (iii) Suppose the price is 14.4. What is the profit maximizing choice of output in the short-run?
