Bob and Ray Are Thinking of Buying a Sofa

question 10

Multiple Choice

Bob and Ray 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 $1,200 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)$1,500.
• B)$533.33.
• C)$550.
• D)$1,000.
• E)$2,000.

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Definitions:

Environmental Sustainability

The ability to meet humanity’s current needs without compromising the ability of future generations to meet their needs.

Endangered Species

A species whose numbers are so severely reduced that it is in imminent danger of extinction throughout all or part of its range. Compare with threatened species.

Trematodes

A class of flatworms, commonly known as flukes, which are parasitic at some stage of their life cycle.

Habitat Destruction

The process by which natural habitat is rendered unable to support the species present, usually due to human activities such as agriculture or urban development.