A Small Economy Has Only Two Consumers, Nick and Minnie

question 13

Multiple Choice

A small economy has only two consumers, Nick and Minnie.Nick's utility function is U(x, y) = x + 154y^1/2.Minnie's utility function is U(x, y) = x + 7y.At a Pareto optimal allocation in which both individuals consume some of each good, how much y does Nick consume?

• A)22
• B)18
• C)121
• D)9
• E)We can't tell without knowing the initial endowments.

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Definitions:

Labor

The combined physical and mental exertion employed in creating goods and services.

Marginal Physical Product

The change in total physical output that results from a one-unit increase in the quantity of one input, holding other inputs constant.

Marginal Revenue Product

The extra income derived from the use of an additional unit of a resource or input in production.

Input

Resources such as labor, materials, and capital that are used in the production process to create goods and services.