Question

Suppose there are only two people, Simon and Charity, who must split a fixed income of $ 100. For Simon, the marginal utility of income is
MUs = 400 -2Is
whereas for Charity, marginal utility is
MUc =400 -6Ic
where I c , I s are the amounts of income to Charity and Simon, respectively.
a. What is the optimal distribution of income if the social welfare function is additive?
b. What is the optimal distribution if society values only the utility of Charity? What if the reverse is true? Comment on your answers.
c. Finally, comment on how your answers change if the marginal utility of income for both Simon and Charity is constant:
MUc =400 =MUs -=00


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  • CreatedMarch 25, 2015
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