Consider two households, A and B. They must decide how much to invest in a joint project. If they decide to devote €y to the project, household A gets UA = 40y - y2 and household B gets Up = 60y - y2. = Consider initially that these households can only decide on the investment level y. They cannot use monetary transfers to compensate whichever household loses out when taking alternative decisions. i. Is an investment level of €28 is efficient? Justify your answer. What level (or levels) of investment is (or are) efficient? Prove your ii. answer. = = Consider now that households A and B can decide on a level of investment and rely on monetary transfers to compensate each other if needs be. Thus, household A gets UA = 40y - y2 – t and household B gets Up = 60y - y2 + t where the transfer t is positive when household A gives money to household B and negative otherwise. iii. Is an investment of €28 efficient in this situation? Prove your answer. Exercise 2: Consider two households, A and B and two goods, X and Y. Overall, there are 10 units of good X and 8 units of good Y that the households A and B can share.