Question: Problem 5. We want to divide one divisible resource among two agents. Think, for exam- ple, about dividing an amount of money between the

Problem 5. We want to divide one divisible resource among two agents.

Problem 5. We want to divide one divisible resource among two agents. Think, for exam- ple, about dividing an amount of money between the two agents, or allocating computing power between two tasks that need access to a powerful server. To make it simple, we take the amount of resource to equal 1. So there are two agents, A = {1,2} and we need to choose (x1, x2) 0 with x1+x2 1. Suppose that agent i derives a utility u(xi) = x; from an amount of resource xi. Represent all the feasible pairs (u1(x1), u2(x2)) in R with the given resources. Find all the Pareto optimal allocation of resources, and show that an allocation (x1, x2) is Pareto optimal if and only if there are 0, i = 1,2, with 1 + 2 > 0, so that x solves the problem max{1u1 (1) + A2u2(Y2) Y1, Y2 0, Y1 + Y2 1}. Provide an interpretation of (A1, A2).

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