Bob and Ray Are Thinking of Buying a Sofa

Bob and Ray are thinking of buying a sofa.Bob's utility function is U_B (S, M_B) = (1 + S ) M_B and Ray's utility function is U_R (S, M_R) = (3 + S ) M_R, where S = 0 if they don't get the sofa and S = 1 if they do and where M_B and M_R are the amounts of money they have respectively to spend on their private consumptions.Bob has a total of $1,200 to spend on the sofa and other stuff.Ray has a total of $1,600 to spend on the sofa and other stuff.The maximum amount that they could pay for the sofa and still arrange to both be better off than without it is

A) $1,500.
B) $533.33.
C) $550.
D) $1,000.
E) $2,000.

Correct Answer:

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