What is the optimal distribution of income

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Question: Suppose there are only two people, Simon and Charity, who must split a fixed income of $100. For Simon, the marginal utility of income is MUs = 400 - 2Is while for Charity, marginal utility is

MUc = 400 - 6Ic

where le, I, are the amounts of income to Charity and Simon, 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 Charity? What if the reverse is true? Comment on your answers.

c. Finally, comment on how your answers change if the marginal utility of income for both Simon and Charity is constant:

MUc = 400 MUs = 400

Reference no: EM131490490

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