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Diana and Pierre are considering the purchase of a new sofa for their living room. Diana's utility function is UD(s, mD) = (1+s) mD.Pierre's utility
Diana and Pierre are considering the purchase of a new sofa for their living room.
Diana's utility function is UD(s, mD) = (1+s) mD.Pierre's utility function is UP(s, mP) = (2+s) mP.
Assumethats=0ifDianaandPierredonotgetthesofaands=1iftheydo.mDandmP, respectively, are the amounts of money Diana and Pierre have to spend on private consumption. Each of them has a total of w =100 to spend.
Determine the maximum amount Diana and Pierre could pay for the sofa and still both be better off than without it!
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