Question 3: Two roommates, Annabel and Brittany, are considering purchasing a coffee-table for their living room. Annabel has $200 of disposable income and Brittany has $150 of disposable income. Both roommates receive linear utility from personal consumption (i.e. one more dollar increases utility by one). Annabel would really like a coffee table, her utility would increase by 60 if she could use a coffee-table. Brittany likes the coffee-table less and having one would increase her utility only by 40. Given this information: 1. Calculate the reservation prices for each roommate 2. If the price of the coffee-table were $120, would it be Pareto efficient to buy it? Why / why not? 3. If the price pf the coffee-table were $80, would it be Pareto efficient to buy it? Why / why not? 4. Describe a possible division of the cost between the two roommates if they decide to buy the table.

Question 3: Two roommates, Annabel and Brittany, are considering purchasing a coffee-table for their living room. Annabel has $200 of disposable income and Brittany has $150 of disposable income. Both roommates receive linear utility from personal consumption (i.e. one more dollar increases utility by one). Annabel would really like a coffee table, her utility would increase by 60 if she could use a coffee-table. Brittany likes the coffee-table less and having one would increase her utility only by 40. Given this information: 1. Calculate the reservation prices for each roommate 2. If the price of the coffee-table were $120, would it be Pareto efficient to buy it? Why / why not? 3. If the price pf the coffee-table were $80, would it be Pareto efficient to buy it? Why / why not? 4. Describe a possible division of the cost between the two roommates if they decide to buy the table.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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