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Solve for the optimal budgetary choice of agent 1 in the exchange economy with u1(xa , xb)=xa 0.5 xb 0.5 and the price p referring to the price of...
1.Solve for the optimal budgetary choice of agent 1 in the exchange economy with u1(xa , xb)=xa 0.5 xb 0.5 and the price p referring to the price of good a as 2. Assume agent 1 has an endowment of one unit of each good. Be sure to highlight the system of equations you are solving before you attempt a solution. Note also that the marginal rate of substitution for this utility function is simply the ratio of the two goods with xb in the numerator.
2.Consider the same economy as before but without a known price. Assume a second agent, agent 2 with the same utility function as before but with an endowment of 2 units of good a and no units of good b. List the variables that constitute an equilibrium. Write out the (unique) system of equations the equilibrium variables must solve. Solve for all of the equilibrium variables
