Nadia Comaneci and Mr

question 11

Multiple Choice

Nadia Comaneci and Mr. X have preferences defined over pizza, p, and trampolines, t. They have identical utility functions, U(p, t) = . Each pizza costs $1 and each trampoline costs $1,000. Nadia and Mr. X like to share, and indeed trampolines are a public good for them. Pizza, however, is a private good. We don't know their exact incomes, but we do know that each of them earns at least $10,000.

• A) The Pareto efficient number of trampolines for them is 4.
• B) The Pareto efficient number of trampolines for them is 1.
• C) The Pareto efficient number of trampolines for them cannot be determined without knowing how the costs will be shared.
• D) The Pareto efficient number of trampolines for them is 2.
• E) Since their preferences are homothetic, their income elasticity of demand for pizza is -1.

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Definitions:

Perfectly Competitive

A market structure characterized by many sellers and buyers, homogeneous products, and free entry and exit, leading to price takers on both sides.

ATC Curve

A graph that shows the average total cost of producing different quantities of a good or service, calculated by dividing the total cost by the quantity produced.

Positive Economic Profit

The excess amount by which total revenue surpasses the total costs, including opportunity costs of production.

Perfectly Competitive

A market structure characterized by a large number of small firms, a homogeneous product, free entry and exit, and perfect information.