5. Brutus doesn't like lengthy speeches; his friend Cicero does like such speeches, at least to...

 

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5. Brutus doesn't like lengthy speeches; his friend Cicero does like such speeches, at least to a point. Every day they go together to the Senate House, where they listen to speeches together. Cicero's utility function is u(s, t) = 16s-s-t, where s is his speech consumption (hours per day, s>0), and t represents a payment from Cicero to Brutus (so if t is negative, Brutus is paying Cicero). Brutus's utility is v(s, t) = t-3s, where s (again) is his speech consumption (hours per day). Remember, they always listen to speeches together: that's what friends do. a. (8 points) Please graph this situation (including some indifference curves for both senators, as in Diagram of the Day 13), with s on the horizontal axis and t (which can be negative) on the vertical axis. Determine the contract curve (the set of Pareto or socially efficient points) for Cicero and Brutus. b. (6 points) Assume that transaction costs are zero. If Cicero has the right to listen to as many speeches as he pleases, what contracts between Cicero and Brutus are feasible? c. (5points) Assume that Brutus has the property right to the choice of s. What is the largest that transaction costs can be such that Brutus and Cicero still will enter into an agreement? 5. Brutus doesn't like lengthy speeches; his friend Cicero does like such speeches, at least to a point. Every day they go together to the Senate House, where they listen to speeches together. Cicero's utility function is u(s, t) = 16s-s-t, where s is his speech consumption (hours per day, s>0), and t represents a payment from Cicero to Brutus (so if t is negative, Brutus is paying Cicero). Brutus's utility is v(s, t) = t-3s, where s (again) is his speech consumption (hours per day). Remember, they always listen to speeches together: that's what friends do. a. (8 points) Please graph this situation (including some indifference curves for both senators, as in Diagram of the Day 13), with s on the horizontal axis and t (which can be negative) on the vertical axis. Determine the contract curve (the set of Pareto or socially efficient points) for Cicero and Brutus. b. (6 points) Assume that transaction costs are zero. If Cicero has the right to listen to as many speeches as he pleases, what contracts between Cicero and Brutus are feasible? c. (5points) Assume that Brutus has the property right to the choice of s. What is the largest that transaction costs can be such that Brutus and Cicero still will enter into an agreement?