Now the economy has two goods, X and Y. There are nine units of each good, to di
ID: 1194364 • Letter: N
Question
Now the economy has two goods, X and Y. There are nine units of each good, to divide between Hamlet and Ophelia. Hamlet’s utility function is UH(xH,yH) = xHbyHa, where xH represents his consumption of good X and yH represents his consumption of good Y. Ophelia’s utility function is UO(xO,yO) = xOayOb, where xO and yO represent her consumption of goods X and Y.
1) Express utilitarian social welfare as a function of xO and yO. Without calculating the point that maximizes utilitarian social welfare, can you say whether it must lie on the contract curve?
2) Draw an Edgeworth box of the possible allocations of goods X and Y, with good X measured horizontally, good Y measured vertically, and Ophelia’s origin at the lower left. It is not necessary to draw any indifference curves.
3) In the Edgeworth box, draw the contract curve, which shows all of the Pareto efficient allocations of X and Y. In the interior of the box, an allocation is Pareto efficient if Hamlet and Ophelia have the same marginal rate of substitution at that point. (That test is valid because their indifference curves are convex.) You should show the exact coordinates of at least four points on the curve. (The curve includes at least four points that have integer coordinates.)
Explanation / Answer
the products will be choosen by the customers based on his requirement and based on the availability of the goods
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