In Famland, there are two types of individuals: active; sedentary. While the active individuals like to exercise in facitilities provided by the city (such as parks, swimming pools, etc..., in other words, a public good), the sedentary individuals give lower importance to those goods. Both individuals consume two goods: facilities to excercise (f); all other private goods (g). The utility function for active individuals is Ua = f3/5 g²/5 whereas the utility function for sedentary individuals is U, = f/5g4/5. Considering that the income of both individuals are the same $200 and that the prices are pf = $1 and P. = $2, what would be the optimal allocation? Interpret your answer.

In Famland, there are two types of individuals: active; sedentary. While the active individuals like to exercise in facitilities provided by the city (such as parks, swimming pools, etc..., in other words, a public good), the sedentary individuals give lower importance to those goods. Both individuals consume two goods: facilities to excercise (f); all other private goods (g). The utility function for active individuals is Ua = f3/5 g²/5 whereas the utility function for sedentary individuals is U, = f/5g4/5. Considering that the income of both individuals are the same $200 and that the prices are pf = $1 and P. = $2, what would be the optimal allocation? Interpret your answer.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.12P

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