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Show the derivation process that leads to the final solution for all parts of question.
Hi, I need some help with these econs questions please to point me in the right direction...
Show the derivation process that leads to the final solution for all parts of question. Please be vigilant with labelling the diagram (intercepts, equilibrium, axis... where sufficient information is available) to show the connection of your answer with the question.
1. Joey (J) and Chandler (C) like to consume pizza (P) with beer (B). Joey's utility function is ???? = 2????/????/ and Chandler's is ???? = ????????. Joey's marginal utility of pizza and beer are ???????? = ????/????/ and ???????? = ????/????/ . Similarly, Chandler's are ???????? = 2???????? and ???????? = ????. Here superscript J and C represents agent and subscript P and B represent goods. 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 while watching a rerun of "Baywatch".
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)
