Suppose you have two individuals in a town, Ben and Jerry, deciding over their consumption of...

Suppose you have two individuals in a town, Ben and Jerry, deciding over their consumption of ice-cream and fireworks. Further suppose that the price, as well as the additional cost of producing both goods is $1. Assume that Ben and Jerry have the same preferences. If we left it up to Ben and Jerry, would we get the optimal provision of fireworks? Explain and show your answer.

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Expert Solution

Here we wouldn't get the optimal provision of fireworks because of the fact that the additional cost of producing both of them are equal and they have the same preferences over consumption and in this regard the optimal provision is idhar using full budget for producing fireworks or zero fireworks and it depends on the utility levels and that is the reason why we don't have an optimal provision here provided that there is a constant marginal utility for both the goods

Rahul Sunny answered 1 year ago

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