Given the following MV information, what is the optimal allocation of care accor

Question

Given the following MV information, what is the optimal allocation of care according to the Paretean criteria, when the marginal cost of care is constant at $1000?

Person A Person B
Quantity of care consumed MV Quantity of care consumed MV
1 $200 1 $150
2 1 80 2 120
3 162 3 92
4 146 4 66
5 134 5 42
6 122 6 20
7 112 7 0
8 104 8 0
9 98 9 0

Explanation / Answer

optimal allocation of care will happen when the marginal value > marginal cost so for person A will have it happen when 8 units of care are given (unit 9 has MC (100)> MV (98) so its not optimal) person B will have it happen at 2 units of care are given (unit 3 has MC 100 > MV 92 so it is not optimal) Basically keep going until marginal value > marginal cost no longer true and go back a unit when it was true

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