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 $3,000 and the child in city B has an income of $9,000.The parent wants to give a total of $2,000 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 3 times as much money as the child in city A. B)the child in city B 1.50 times as much money as the child in city A. C)the child in city A 3 times as much money as the child in city B. D)each child $1,000, 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 parent's utility function is not specified in detail, the fairest assumption without further information is to split the total amount equally between the two children, despite the difference in the cost of living in their respective cities.

A Parent Has Two Children Living in Cities with Different