2. Suppose there are only two people, Simon and Charity, who must split a fixed income of $100. For Simon, the marginal utility of income is MU, = 400 - 21, whereas for Charity, marginal utility is MU= 400 - 61 where I, I, are the amounts of income to Charity and Simon, respectively. a. What is the optimal distribution of income if the social welfare function is additive? b. What is the optimal distribution if society val- ues only the utility of Charity? What if the reverse is true? Comment on your answers. c. Finally, comment on how your answers change if the marginal utility of income for both Simon and Charity is constant: MU= 400 MU, 400

2. Suppose there are only two people, Simon and Charity, who must split a fixed income of $100. For Simon, the marginal utility of income is MU, = 400 - 21, whereas for Charity, marginal utility is MU= 400 - 61 where I, I, are the amounts of income to Charity and Simon, respectively. a. What is the optimal distribution of income if the social welfare function is additive? b. What is the optimal distribution if society val- ues only the utility of Charity? What if the reverse is true? Comment on your answers. c. Finally, comment on how your answers change if the marginal utility of income for both Simon and Charity is constant: MU= 400 MU, 400

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2. Suppose there are only two people, Simon and
Charity, who must split a fixed income of $100.
For Simon, the marginal utility of income is
MU, = 400 - 21,
whereas for Charity, marginal utility is
MU= 400 - 61
where I, I, are the amounts of income to Charity
and Simon, respectively.
a. What is the optimal distribution of income if
the social welfare function is additive?
b. What is the optimal distribution if society val-
ues only the utility of Charity? What if the
reverse is true? Comment on your answers.
c. Finally, comment on how your answers
change if the marginal utility of income for
both Simon and Charity is constant:
MU₂ = 400 MU, = 400

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