Suppose two friends go out to eat. Each individual i has utility ui obtained from slices of
pizza, xi
, and money, mi
, given by
ui(xi
,mi) = 5xi −0.5x
2
i +mi
,i = 1,2, (1)
where mi
is in dollars. Suppose that each individual has 10 dollars in his wallet and that the
price of pizza is p=2 per slice.
(a) If each person pays for his own pizza, how many slices will he eat? How much net con-
sumer surplus will each individual get? (Net consumer surplus is the change in utility
from the purchase and consumption of pizza relative to not purchasing or consuming
any.)
(b) If the friends decide in advance to split the bill, how many slices will each eat? How
much consumer surplus will each individual get?