Suppose 20 people live on a street and that each of them is willing to pay $2 for each extra streetlight, regardless of the number of streetlights provided.  If the cost of providing x streetlight is given by c(x) = x2, what is the Pareto efficient number of streetlights to provide?

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Pareto efficiency refers to an allocation of resources where the marginal rate of substitution is the same for all consumers. The allocation should be such that if there are two entities being considered, any change in the allocation makes one better off at the expense of the other.


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