On a Certain Island There Are Only Two Goods, Wheat

question 31

Multiple Choice

On a certain island there are only two goods, wheat and milk. The only scarce resource is land. There are 1,000 acres of land. An acre of land will produce either 8 units of milk or 15 units of wheat. Some citizens have lots of land; some have just a little bit. The citizens of the island all have utility functions of the form U(M, W) = MW. At every Pareto optimal allocation,

• A) every consumer's marginal rate of substitution between milk and wheat is -1.
• B) the number of units of milk produced equals the number of units of wheat produced.
• C) total milk production is 4,000 units.
• D) all citizens consume the same commodity bundle.
• E) None of the above is true at every Pareto optimal allocation.

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Definitions:

Preferred Shares

A type of stock that provides certain advantages to shareholders, such as fixed dividends and priority over common stock in asset liquidation.

Rights and Restrictions

Legal entitlements or permissions and the limitations imposed on them, often outlined in contracts or laws.

Negotiated

The process by which parties come to a mutual agreement through discussion and compromise.

Pre-emptive Rights

The right of existing shareholders in a company to have the first opportunity to purchase new shares issued by the company, to maintain their proportionate ownership.