Use the following information toanswer the next two questions:
Suppose society consists of two individuals, A and B, who mustsplit a fixed income of $100. Individual A’s marginal utility ofincome is given by MUA=400-8IA and individualB’s marginal utility of income is given byMUB=800-4IB.
17. If the social welfare function is given byW=UA+UB, then at the optimal distribution of         income,social welfare (W) is _______________.
18. Suppose instead that the socialwelfare function is given by W=UA, then at the optimaldistribution of income, social welfare (W) is ______________.
Use the following information toanswer the next three questions:
Consider an altruistic individual whose utility function isgiven by U=f(Iself,Icharity). Their marginalbenefit of donating to charity (i.e. those in need) is given byMPB=200-Icharity and their marginal cost of donating tocharity is given by MPC=4Icharity. This individual’sdonations also result in marginal external benefits to thirdparties (those who benefit from knowing that donations are beingmade to those in need), given by MEC=5. Using a graph with dollarson the vertical axis and Icharity on the horizontalaxis, answer the following questions.
19. This individual will voluntarily donate $ ______________tocharity.
20. The deadweight loss associated with this individualvoluntarily donating to charity is
     $_____________.
21. To encourage this individual tovoluntarily donate the socially efficient amount to charitygovernment would need to offer this individual a tax credit in theamount of $_____________.
