Suppose That in Problem 8, Mutt's Utility Function Is U(m

question 26

Multiple Choice

Suppose that in Problem 8, Mutt's utility function is U(m, j) = max{ 3m, j} and Jeff's utility function is U(m, j) = 2m + j. Mutt is initially endowed with 2 units of milk and 2 units of juice, and Jeff is initially endowed with 6 units of milk and 6 units of juice. If we draw an Edgeworth box with milk on the horizontal axis and juice on the vertical axis and if we measure goods for Mutt by the distance from the lower left corner of the box, then the set of Pareto optimal allocations includes the

• A) left edge and bottom edge of the Edgeworth box.
• B) right edge of the Edgeworth box but no other edges.
• C) left edge of the Edgeworth box but no other edges.
• D) bottom edge of the Edgeworth box but no other edges.
• E) right edge and top edge of the Edgeworth box.

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Definitions:

Non-Controlling Interest

The portion of equity in a subsidiary not attributable directly or indirectly to the parent company, also known as minority interest.

Voting Shares

Shares of stock that grant the holder the right to vote on corporate matters.

Cost Method

Accounting for investments where the investor does not exercise significant influence, recording the investment at initial cost and recognizing income only when dividends are received.

Unrealized Intercompany Gain

Profits recorded on the books resulting from transactions among subsidiaries that are not realized until sold to an external party.