Bob and Ray Are Thinking of Buying a Sofa

question 9

Multiple Choice

Bob and Ray are thinking of buying a sofa. Bob's utility function is U_B(S, M_B) = (1 + S) M_B and Ray's utility function is U_R(S, M_R) = (3 + S) M_R, where S = 0 if they don't get the sofa and S = 1 if they do and where M_B and M_R are the amounts of money they have respectively to spend on their private consumptions. Bob has a total of $1,200 to spend on the sofa and other stuff. Ray has a total of $1,600 to spend on the sofa and other stuff. The maximum amount that they could pay for the sofa and still arrange to both be better off than without it is

• A) $1,500.
• B) $533.33.
• C) $550.
• D) $1,000.
• E) $2,000.

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Definitions:

Cell Body

The part of a neuron that contains the nucleus and most of the cytoplasm and where the metabolic work of the cell is done.

Neuron

A nerve cell that is the basic building block of the nervous system, responsible for transmitting information throughout the body.

Biochemical Machinery

The complex systems and processes of biochemical reactions and interactions within living organisms.

Autonomic Nervous System

The part of the nervous system that controls involuntary bodily functions, including heart rate, digestion, and respiratory rate.