(See Problem 2

question 3

Multiple Choice

(See Problem 2.) Robinson Crusoe has exactly 8 hours per day to spend gathering coconuts or catching fish. He can catch 4 fish per hour or he can pick 8 coconuts per hour. His utility function is U(F, C) = FC, where F is his consumption of fish and C is his consumption of coconuts. If he allocates his time in the best possible way between catching fish and picking coconuts, his consumption will be the same as it would be if he could buy fish and coconuts in a competitive market where the price of coconuts is $1, his income is

• A) $96 and the price of fish is $4.
• B) $64 and the price of fish is $.25.
• C) $32 and the price of fish is $4.
• D) $64 and the price of fish is $2.
• E) $48 and the price of fish is $.25.

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Definitions:

Allocatively Inefficient

A situation where resources are not allocated in a way that maximizes the total benefits to society, often leading to overproduction or underproduction of certain goods.

Productively Inefficient

A situation in which a producer cannot produce a desired output at the lowest possible cost, indicating a waste of resources.

Collusive Practices

Actions taken by competing companies to work together secretly to increase prices or reduce competition, which is illegal in many jurisdictions.

Economic Inefficiency

arises when resources are not allocated in a way that maximizes the potential output or when there is a failure to fully utilize resources, resulting in lost potential gains.