Two friends, Minrui and Jing, share a flat and both consume internet (i) and all other goods (g). The utility function for Minrui is U_m=i^(0.3)g^(0.7) whereas the utility function for Jing is U_m=i^(0.1)g^(0.9). Considering that the income of both individuals are the same $500 and that the prices are p_i= $80 and p_g = $5, what would be the optimal allocation of public good (i) and private good (g)? Interpret your answer.
Two friends, Minrui and Jing, share a flat and both consume internet (i) and all other goods (g). The utility function for Minrui is U_m=i^(0.3)g^(0.7) whereas the utility function for Jing is U_m=i^(0.1)g^(0.9). Considering that the income of both individuals are the same $500 and that the prices are p_i= $80 and p_g = $5, what would be the optimal allocation of public good (i) and private good (g)? Interpret your answer.
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.12P
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