Government transfer to wife or policy in favour of wife for child custody will increase wife's threat point. In this example (Q3 iii) , will threat point increase for Angelina? (since only her movie offers increases).

Q3 (11 marks) Angelina and Brad are married and making movies together. Both of them are successful actors, earning quite well. U A and U 3 denote Angelina and Brad's respective utilities. Angelina and Brad have resources IA and 13 respectively. They can redistribute these resources between each other. Their threat points are TA and TB. (i) Write down the constraint maximization problem for Angelia and Brad when I A = 2000, IB = 2000, TA = 200 and TB = 300 (2 marks) (ii) Solve for U j and for U 3 (show working). (3 marks) Overtime, Brad loses interest in movies and in the process, he also experiences huge nancial loss. Angelina keeps working hard and gets lucrative offers in blockbuster Hollywood movies. If Angelina decides to leave Brad and remarry, she can easily do so given her popularity, however remarriage would not be easy for Brad given his recent adverse nancial situation. (iii) How does this changed scenario affect Angelina's threat point, ceteris paribus? (2 mark) (iv) Graphically demonstrate how the expected change in Angelia's threat point may affect her utility in the new Nash bargaining solution when: a) Brad's threat point does not change. b) Brad's threat point decreases. Draw two separate gures for scenario a) and b) indicating the original and new Nash solutions by z and 2', respectively. Accurately label the gure and indicate the direction of shift by an arrow. (2+2 marks)