4. Billy and Ruth are thinking of buying a sofa. Billy's utility function is Ug(S, MB) = (1 + S)MB and Ruth's utility function is UR(S, Mg) = (3+ S)MR, where S = 0 if they don't get the sofa and S = 1 if they do and where MB and MR are the amounts of money they have respectively to spend on their private consumptions. Billy has a total of $800 to spend on the sofa and other stuff. Ruth has a total of $1,600 to spend on the sofa and other stuff. The maximum amount that they could pay for the sofa and still arrange to both be better off than without it is (Hint: Get the sum of their reservation prices for the public good).

4. Billy and Ruth are thinking of buying a sofa. Billy's utility function is Ug(S, MB) = (1 + S)MB and Ruth's utility function is UR(S, Mg) = (3+ S)MR, where S = 0 if they don't get the sofa and S = 1 if they do and where MB and MR are the amounts of money they have respectively to spend on their private consumptions. Billy has a total of $800 to spend on the sofa and other stuff. Ruth has a total of $1,600 to spend on the sofa and other stuff. The maximum amount that they could pay for the sofa and still arrange to both be better off than without it is (Hint: Get the sum of their reservation prices for the public good).

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter20: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 4CQ

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