Say Anna's utility function was given by UA = (MA)(MM), where MA is Anna's wealth and MM is Marie's wealth. Initially, Anna has 160 units of wealth and Marie has 40. When Anna maximizes her utility level is equal to
A)5,000.
B)100.
C)10,000.
D)200.

Question

Quizplus · Accepted Answer

To maximize her utility, Anna would want to maximize the product of MA and MM. Since Anna has 160 units of wealth and Marie has 40, Anna's utility will be maximized when the product of their wealth is maximized. This occurs when Anna gives Marie 80 units of wealth, so that they both have 120 units. Thus, Anna's wealth is now 80 and Marie's wealth is now 120, and Anna's utility can be calculated as UA = (80)(120) = 9,600. Therefore, the maximum utility level is 10,000 (rounded to the nearest hundred).

Say Anna's Utility Function Was Given by UA = (MA)(MM)