So for Fred, Z and B are efficiently allocated when Z=B. Further, there are no diminishing returns. That is MU at Z0=B0 is the same as MU at Z1=B1. For Ethel, like Fred, there are no diminishing returns. However, efficient allocation calls for 2Z=B.
So, it may not be equitable, but one efficient allocation is to give everything to Ethel.
Suppose Fred and Ethel need to divide 20 pizza slices and 10 cans of beverage. Fred's utility function is given by the equation U=Min(Z,B), where Z is the amount of pizza and B is the amount of beverage. Ethel's utility is given by the equation U=Min(1/2Z,B). What are the efficient allocation of Pizza and Beverage?
1 answer
1 answer