A parent has two children living in cities with different costs of living.The cost of living in city B is 3 times the cost of living in city A.The child in city A has an income of $2,000 and the child in city B has an income of $6,000.The parent wants to give a total of $1,000 to her two children.Her utility function is U(C_A, C_B)= C_AC_B, where C_A and C_B are the consumptions of the children living in cities A and B respectively.She will choose to give A)the child in city B 1.50 times as much money as the child in city A. B)the child in city A 3 times as much money as the child in city B. C)the child in city B 3 times as much money as the child in city A. D)each child $500, even though this will buy less goods for the child in city B. E)the child in city A 1.50 times as much money as the child in city B.

Question

Quizplus · Accepted Answer

Given the utility function and the information provided, the parent's decision does not depend on the cost of living differences between the cities. Therefore, without specific instructions to adjust for cost of living, the parent opts to divide the total amount equally between the two children, resulting in each child receiving $500.

A Parent Has Two Children Living in Cities with Different