Question: 2. Garfield and Odie both get utility from two things: lasagna (L) and public parks (K). Garfield's utility function is UG = Lx x K.


2. Garfield and Odie both get utility from two things: lasagna (L) and public parks (K). Garfield's utility function is UG = Lx x K. Odie's utility function is UO = Lo X K. The total number of parks is the sum paid for by each, so K = KG + Ko. Garfield has income of $200 and Odie has income of $75. Both L and K have a price of $1. (a) Set up Garfield and Odie's optimization problems. (b) How many parks total parks will exist, and how many will each Garfield and Odie provide if they each privately decide how many parks and lasagnas to consume. Hint: Garfield's reaction function is KG = 50- E (Ko) and Odie's reaction function is Ko = 75 - E(KG)
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
