Ken's utility function is U(Q_K, W_K)=Q_KW_K and Barbie's utility function is U(Q_B, W_B)=Q_BW_B.If Ken's initial endowment were 4 units of quiche and 6 units of wine and Barbie's endowment were 8 units of quiche and 6 units of wine, then at any Pareto optimal allocation where both persons consume some of each good, A)Ken would consume 4 units of quiche for every 6 units of wine. B)Barbie would consume twice as much quiche as Ken. C)Ken would consume 12 units of quiche for every 12 units of wine that he consumes. D)Barbie would consume 8 units of quiche for every 6 units of wine that she consumes. E)None of the above.

Question

Quizplus · Accepted Answer

In a Pareto optimal allocation, the marginal rate of substitution (MRS) for both individuals must be equal. Given the utility functions, Ken and Barbie will consume goods in the same proportion as their initial endowments, leading Ken to consume 12 units of quiche for every 12 units of wine.

Ken's Utility Function Is U(QK, WK)=QKWK and Barbie's Utility Function

Ken's Utility Function Is U(Q_K, W_K)=Q_KW_K and Barbie's Utility Function