Again assume that the economy has 9 units of good X, and nine units of good Y, t

Question

Again assume that the economy has 9 units of good X, and nine units of good Y, to divide between Hamlet and Ophelia. Now Hamlet has the utility function U_H(X_H,y_H) = X_H+Y_H and Ophelia has the utility function U_0(x_0,y_0) = X_0+4 root ofy_0. This makes X a numeraire good. Assume that surplus is our measure of social welfare. Calculate surplus as a function of X_0 and y_0. What is the highest possible surplus that be achieved, if the goods are optimally allocated Among all the allocations that maximize surplus, which is the best for Hamlet What utility does he get in that allocation

Explanation / Answer

the answer is 4 units

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