Mutt's Utility Function Is U(m, J) = Max{ 3m, J}

question 43

Multiple Choice

Mutt's utility function is U(m, j) = max{ 3m, j} and Jeff's utility function is U(m, j) = 3m + j. Mutt is initially endowed with 6 units of milk and 2 units of juice and Jeff is initially endowed with 2 units of milk and 6 units of juice. If we draw an Edgeworth box with milk on the horizontal axis and juice on the vertical axis and if we measure goods for Mutt by the distance from the lower left corner of the box, then the set of Pareto optimal allocations includes the

• A) bottom edge of the Edgeworth box but no other edges.
• B) left edge of the Edgeworth box but no other edges.
• C) right edge of the Edgeworth box but no other edges.
• D) left edge and bottom edge of the Edgeworth box.
• E) right edge and top edge of the Edgeworth box.

Distinguish between the marginal cost and the marginal benefit of R&D spending.

Explain the significance of the interest-rate cost-of-funds curve being perfectly elastic.

Understand the role of diminishing marginal returns in shaping the expected-rate-of-return curve for R&D investments.

Recognize different sources of funds for R&D and their implications for R&D decision making.