Remember Bonnie and Clyde from your workbook? Suppose that their total profits are 112H, where H is the number of hours they work per year. Their utility functions are, respectively, U_B(C_B, H) = C_B - 0.02H² and U_C(C_C, H) = C_C - 0.02H², where C_B and C_C are their private goods consumptions and H is the number of hours they work per year. If they find a Pareto optimal choice of hours of work and income distribution, the number of hours they work per year must be

Question

Quizplus · Accepted Answer

To find the Pareto optimal choice, we want to maximize the sum of their utilities subject to their profit constraint: maximize C_B + C_C subject to: C_B + C_C = 112H We can use the first-order condition to find the optimal consumption levels: ∂(C_B + C_C)/∂C_B = 1 - 0.02H² = 0 ∂(C_B + C_C)/∂C_C = 1 - 0.02H² = 0 Solving for H, we get: H = 1,400 Therefore, the answer is choice letter D.

Remember Bonnie and Clyde from Your Workbook? Suppose That Their