Question

Question
(a) There is an economy with three goods: Audis (a), BMWs (b), and Cadillacs (c). There
are 10 total units of each good. Klaus has utility function UK(ab, c) = a+b, while Larry
has utility function UL(a, b, c) = c. Describe the set of Pareto efficient allocations in this
economy (i.e., the contract curve). Note: You should not try to do this mathematically.
Use the definition of Pareto efficiency and do your best to describe verbally what the
set of Pareto efficient allocations is.
(b) Consider the same economy as in part (a), but add a third agent, Mary, who has utility
function UM(a, b, c) = b + c. Again, describe the set of Pareto efficient allocations.

Answer 1