The social welfare function is additive

Reference no: EM13328084

Suppose there are only two people, Mr. Moore and Mr. Huang, who must split a fixed income of $100. For Mr. Moore, the marginal utility of income is MUM=300-7IM while for Mr. Huang, marginal utility is MUH=50-(1/2)IH . where IM, IH are the amounts of income to Mr. Moore and Mr. Huang, respectively.
A) What is the optimal distribution of income if the social welfare function is additive?
B) What is the optimal distribution if society values only the utility of Mr. Huang? What if
the reverse is true? Comment on your answer.
C) Finally, comment on how your answers change if the marginal utility of income for both
Mr. Moore and Mr. Huang is constant such that MUH=400= MUM (This one is subtle.)

Reference no: EM13328084

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