Homer and Marge both enjoy lasagna and wine. Homer's utility function is given by U(L,W) = 12L + 4W. Marge's utility function is given by U(L,W) = 2L + 2W. In each function, L stands for plates of lasagna and W stands for glasses of wine. Would Homer and Marge agree to a trade in which Homer gives Marge a plate of lasagna in exchange for two glasses of wine?
What will be an ideal response?
For Homer, MUL = 12 and MUW = 4, therefore the MRSLW = 3 glasses of wine per plate of lasagna. For Marge, MUL = 2 and MUW = 2, therefore the MRSLW = 1 glass of wine per plate of lasagna. Therefore, the trade benefits both Homer and Marge.
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