Multiple Choice
A parent has two children living in cities with different costs of living. The cost of living in city B is 2 times the cost of living in city A. The child in city A has an income of $5,000 and the child in city B has an income of $10,000. The parent wants to give a total of $4,000 to her two children. Her utility function is U(CA, CB) = CACB, where CA and CB are the consumptions of the children living in cities A and B respectively. She will choose to give
A) each child $2,000, even though this will buy less goods for the child in city B.
B) the child in city B twice as much money as the child in city A.
C) the child in city A twice as much money as the child in city B.
D) the child in city B the same amount of money as the child in city A.
E) the child in city A the same amount of money as the child in city B.
Correct Answer:

Verified
Correct Answer:
Verified
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