Question

Kate and Humphrey have initial endowments of goods 1 and 2, eL = (8, 2) and...

Kate and Humphrey have initial endowments of goods 1 and 2, eL = (8, 2) and eH = (2, 8). Kate’s preferences are represented by utility function uL(x1,x2) = x1x2 and Humphrey’s preferences are represented by utility function uH (x1, x2) = ((x1)^2)(x2). Denote by xL = (x1L , x2L) Lauren’s equilibrium consumption bundle. Humphrey’s consumption bundle is xH = (x1H ,x2H ). In equilibrium it must that x1L +x1H = e1L +e1H = 10 and x2L +x2H = e2L+e2H = 2+8 = 10. Determine all equlibrium allocations, (xL, xH ) that are on the contract curve.

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Change the Humphrey and Lauren example such that Lauren’s utility function is uL(x1,x2) = min{x1, x2}...
Change the Humphrey and Lauren example such that Lauren’s utility function is uL(x1,x2) = min{x1, x2} and Humphrey’s utility function is uH (x1, x2) = 2√x1 + √x2. Their endowments are eL = (4,16) and eH = (2,24). 1)Suppose Humphrey and Lauren are to simply just consume their given endowments. State the definition of Pareto efficiency. Is this a Pareto efficient allocation? As part of answering this question, can you find an alternative allocation of the goods that Pareto dominates...
Kate and Antonio meet in their school cafeteria and examine the contents of their lunch boxes....
Kate and Antonio meet in their school cafeteria and examine the contents of their lunch boxes. Kate discovers a bag of M&Ms while Antonio finds a package of Starburst. Suppose a market place for candy has emerged in the school lunch room. The price of a Starburst is 16 cents, p1 = 16, and the price of an M&M is 4 cent, p2 = 4. Antonio has 12 Starbursts and zero M&M’s. Kate has zero Starbursts and 200 M&Ms. Suppose...
Let Antonio and Kate’s preferences be represented by the utility functions, uAntonio(x1, x2) = 9((x1)^2)(x2) and...
Let Antonio and Kate’s preferences be represented by the utility functions, uAntonio(x1, x2) = 9((x1)^2)(x2) and uKate(x1, x2) = 17(x1)((x2)^2), where good 1 is Starbursts and good 2 is M&M’s. Antonio’s endowment is eA = (24, 0) and Kate’s endowment is eK = (0, 200). Antonio and Kate will exchange candy with each other using prices p1 and p2, where p1 is the price of one starburst and p2 is the price of one M&M. a) Determine Antonio’s and Kate’s...
Bilbo can consume two goods, good 1 and good 2 where X1 and X2 denote the...
Bilbo can consume two goods, good 1 and good 2 where X1 and X2 denote the quantity consumed of each good. These goods sell at prices P1 and P2, respectively. Bilbo’s preferences are represented by the following utility function: U(X1, X2) = 3x1X2. Bilbo has an income of m. a) Derive Bilbo’s Marshallian demand functions for the two goods. b) Given your answer in a), are the two goods normal goods? Explain why and show this mathematically. c) Calculate Bilbo’s...
1. Al Einstein has a utility function that we can describe by u(x1, x2) = x21...
1. Al Einstein has a utility function that we can describe by u(x1, x2) = x21 + 2x1x2 + x22 . Al’s wife, El Einstein, has a utility function v(x1, x2) = x2 + x1. (a) Calculate Al’s marginal rate of substitution between x1 and x2. (b) What is El’s marginal rate of substitution between x1 and x2? (c) Do Al’s and El’s utility functions u(x1, x2) and v(x1, x2) represent the same preferences? (d) Is El’s utility function a...
1. Suppose utility for a consumer over food(x) and clothing(y) is represented by u(x,y) = 915xy....
1. Suppose utility for a consumer over food(x) and clothing(y) is represented by u(x,y) = 915xy. Find the optimal values of x and y as a function of the prices px and py with an income level m. px and py are the prices of good x and y respectively. 2. Consider a utility function that represents preferences: u(x,y) = min{80x,40y} Find the optimal values of x and y as a function of the prices px and py with an...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT