Suppose That Mutt's Utility Function Is U(m, J)= Max{2m, J}

question 21

Multiple Choice

Suppose that Mutt's utility function is U(m, j) = max{2m, j} and Jeff's utility function is U(m, j) = 3m + j.Mutt is initially endowed with 6 units of milk and 2 units of juice, and Jeff is initially endowed with 2 units of milk and 6 units of juice.If we draw an Edgeworth box with milk on the horizontal axis and juice on the vertical axis and if we measure goods for Mutt by the distance from the lower left corner of the box, then the set of Pareto optimal allocations includes the

• A)left edge of the Edgeworth box but no other edges.
• B)bottom edge of the Edgeworth box but no other edges.
• C)left edge and bottom edge of the Edgeworth box.
• D)right edge of the Edgeworth box but no other edges.
• E)right edge and top edge of the Edgeworth box.

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Definitions:

Scarce Resource

An economic term referring to a resource that has limited availability in relation to its demand, leading to allocation decisions.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Alternative Choices

Different options or courses of action that can be taken in a decision-making process.

Sunk Cost

A cost that has already been incurred and cannot be recovered, regardless of future events.