Recall Bob and Ray in Problem 4

question 15

Multiple Choice

Recall Bob and Ray in Problem 4. They 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 $2,000 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) $2,100.
• B) $533.33.
• C) $750.
• D) $1,400.
• E) $2,800.

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Definitions:

Contractor

An individual or company that undertakes a contract to provide materials or labor to perform a service or do a job.

Employee

An individual who works part-time or full-time under a contract of employment, providing their services in exchange for compensation.

Control

In management, it refers to the power to influence or direct people's behavior or the course of events.

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