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Joey (J) and Chandler (C) like to consume pizza (P) with beer (B).
Hi, I need some help with these econs questions please to point me in the right direction...
1. Joey (J) and Chandler (C) like to consume pizza (P) with beer (B). Initially, Joey had 15 pizzas and 10 bottles of beer, while Chandler had 10 pizzas and 10 bottles of beer. They can trade their foods.
a. What are the total endowments of pizzas and beers for Joey and Chandler? Show the initial endowment allocation in an Edgeworth box (with pizza on x-axis and beer on y-axis). (2 points)
b. What are the marginal rates of substitution MRSPB (of beer for pizza) for each person at initial allocation? (2 points)
c. Is initial allocation Pareto efficient? If not, how should Joey and Chandler exchange to improve efficiency? (2 point)
d. Derive the equation for the contract curve. Plot the contract curve in the Edgeworth box. (3 points)
e. Suppose Joey and Chandler only agree to exchange at the fixed rate of 1 pizza for 1 bottle of beer. Would they be able to achieve exchange equilibrium at this exchange ratio? Explain your answer. (1 point)
