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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

Economics
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.

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