Gisela and Lynn are friends. New clothing is the only good that gives them utility. Each girl spends a certain amount of money per year on clothing. Let x be the amount that Gisela spends on clothing (in thousands of dollars)and let y be the amount of money (in thousands of dollars)that Lynn spends. Gisela's utility expressed as a function of x and y is given by: UG(x, y)= 12x - x2 - xy and Lynn's utility is given by UL(x, y)= 12y - y2 - xy.
i)Calculate x* and y* that Lynn and Gisela spend on clothing when they maximize their utility functions independent of each other.
ii)Calculate the efficient amount of money to be spent on clothing by each of them.
iii)Do they spend too much or too little on clothing? Explain.

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The Answer of Gisela and Lynn are friends. New clothing is the only good that gives them utility. Each girl spends a certain amount of money per year on clothing. Let x be the amount that Gisela spends on clothing (in thousands of dollars)and let y be the amount of money (in thousands of dollars)that Lynn spends. Gisela's utility expressed as a function of x and y is given by: UG(x, y)= 12x - x2 - xy and Lynn's utility is given by UL(x, y)= 12y - y2 - xy.
i)Calculate x* and y* that Lynn and Gisela spend on clothing when they maximize their utility functions independent of each other.
ii)Calculate the efficient amount of money to be spent on clothing by each of them.
iii)Do they spend too much or too little on clothing? Explain.

Gisela and Lynn Are Friends