3. Lucy and Melvin share an apartment. They spend part of their income on private goods such as food and clothing, which they consume separately, and part of their income on public goods such as the refrigerator, heating and rent, which they share. Lucy's utility function is 2XL+G and Melvin's utility function is XM6, where XL and XM are the sums of money spent on private goods for Lucy and Melvin, and G is the sum of money spent on public goods. Lucy and Melvin have a total of $8,000 a year to spend on private goods for each of them and on public goods. a. What is the absolute value of the marginal rate of substitution between private and public goods for Lucy? What is this value for Melvin? Write an equation to calculate the Pareto efficient quantity of public goods. b. Suppose Melvin and Lucy each spend $2,000 on private goods and the remaining $4,000 on public goods. Is this Pareto efficient? c. Give an example of another Pareto optimal outcome in which Melvin receives more than $2000 and Lucy receives less than $2000 for their consumption of private goods. Give an example of another Pareto optimum in which Lucy receives more than $2000./nd. The Pareto optima that makes Lucy better off and Melvin worse off will have (more, less, the same amount) of public goods than the Pareto optimum that treats them the same.

Solved: 3. Lucy and Melvin share an apartment. They spend part of their income

Home
questions and answers
3 lucy and melvin share an apartment they spend part of their income o

Question

3. Lucy and Melvin share an apartment. They spend part of their income on private goods such as food and clothing, which they consume separately, and part of their income on public goods such as the refrigerator, heating and rent, which they share. Lucy's utility function is 2XL+G and Melvin's utility function is XM6,