A Parent Has Two Children Living in Cities with Different

question 3

Multiple Choice

A parent has two children living in cities with different costs of living.The cost of living in city B is 3 times the cost of living in city A.The child in city A has an income of $3,000 and the child in city B has an income of $9,000.The parent wants to give a total of $4,000 to her two children.Her utility function is U(C_A, C_B) = C_AC_B, where C_A and C_B are the consumptions of the children living in cities A and B respectively.She will choose to give

• A)the child in city B 1.50 times as much money as the child in city A.
• B)the child in city A 3 times as much money as the child in city B.
• C)the child in city B 3 times as much money as the child in city A.
• D)each child $2,000, even though this will buy less goods for the child in city B.
• E)the child in city A 1.50 times as much money as the child in city B.

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