Given the following MV information, what is the optimal allocation of care accor
ID: 2505383 • Letter: G
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 $100.
Quantity of care consumed MV Quantity of care consumed MV
1 $200 1 $150
2 180 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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