A three-person society has a utilitarian social welfare function U = u(c1) + u(c2) + u(c3) defined over the utilities of the three citizens. ci is the consumption of citizen i and u(ci) = 2c^0.5i. The society has total 100 units of consumption to divide among the three citizens. Suppose that initially 80 units belong to citizen 1 with 10 units belonging to each of citizens 2 and 3. The government loses $0.50 for each unit it takes away from citizen 1 to give to others. What allocation should the government choose to maximize its social welfare function subject to its equity-efficiency tradeoff?

Answer rating: 100% (QA)

Maximizing Social Welfare with EquityEfficiency Tradeoff Problem Setup Social Welfare Function U uc1 uc2 uc3 Individual Utility Function uci 2 c05i i ... View the full answer