(Figure: Cereal and Pancakes V) Suppose That Elaina Has 1

question 54

Multiple Choice

(Figure: Cereal and Pancakes V) Suppose that Elaina has 1 pancake and 4 bowls of cereal, which gives her a marginal utility of pancakes of 20 and marginal utility of cereal of 5. Jose has 7 pancakes and 6 bowls of cereal, which gives him a marginal utility of pancakes of 6 and marginal utility of cereal of 18. Which of the following statements is (are) TRUE?

• A) The allocation is Pareto-efficient.
• B) Elaina and Jose would both be better off if Elaina traded 1 pancake for 1 bowl of Jose's cereal.
• C) A Pareto improvement would be for Elaina to give Jose 2 bowls of cereal in exchange for 1 pancake.
• D) Elaina and Jose would both be better off if Elaina traded 1/2 pancake for 1 bowl of Jose's cereal.

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Definitions:

Long Run

A period in economics where all factors of production and costs are variable, and firms can enter or exit the market.

Perfect Competitor

A theoretical market structure where numerous small firms produce identical products, allowing no single firm to affect the market price.

Long Run

In economics, this term describes a period in which all factors of production and costs are variable, allowing full adjustment to any change.

Total Profit

The financial gain made after subtracting all expenses from total revenue.