Bob and Ray Are Thinking of Buying a Sofa

question 14

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 $2,000 to spend on the sofa and other stuff.Ray has a total of $2,400 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)$2,400.
• B)$800.
• C)$1,600.
• D)$850.
• E)$3,200.

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Definitions:

Absolute Value

The distance of a number from zero on the number line, without considering which direction from zero the number lies.

Sketch Graph

A rough drawing of a graph to represent a mathematical function or equation visually.

Formula

An expression or equation that describes a mathematical relationship between quantities.

Slope Value

It's the calculation of how slanted a line is, determined by dividing the vertical movement by the horizontal movement between any two points on the line.