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.

---

Definitions:

Treasury Bill

Short-term government securities issued at a discount from the face value and paying no interest, maturing usually in one year or less.

Issue Price

The price at which new securities are offered to the public by the issuer.

Simple Interest

Interest calculated only on the initial principal of a loan or deposit, without compounding.

Annually

Refers to something that happens once every year.