Lucy's Utility Function Is 2X_L + G and Melvin's Utility

question 14

Multiple Choice

Lucy's utility function is 2X_L + G and Melvin's utility function is X_MG, where G is their expenditures on the public goods they share in their apartment and where X_L and X_M are their respective private consumption expenditures. The total amount they have to spend on private goods and public goods is $28,000. They agree on a Pareto optimal pattern of expenditures in which the amount that is spent on Lucy's private consumption is $10,000. How much do they spent on public goods?

• A) $12,000
• B) $3,000
• C) $6,000
• D) $8,050
• E) There is not enough information here to be able to determine the answer.

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Definitions:

Indemnity

A contractual obligation of one party to compensate the loss incurred by another party.

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The body of law that regulates legally binding agreements between parties.

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Back Pay

Compensation owed to an employee for a past period, typically due to underpayment or wage disputes.