3. Consider an economy with two individuals, Eve and Adam. There are twogoods-apples(A) and figs (F). Eve has fixed-coefficient preferences{}where the superscript denotes e for Eve. Eve has an endowment of 20 apples andnothing else. Adam owns only labour, and consumes only apples, thusua (A, F) = A.u(A, F) = minNote that Adam gets no utility from leisure, so he supplies labour inelastically.Labour (L) is needed to produce figs, using the technologyF = L.Suppose initially the endowment of Adam is K units of labour.(a) Compute algebraically the competitive equilibria of this economy for bothK< 20 and K ≥ 20.(b) Depict the solutions for each case graphically.(c) Now suppose the endowment of Adam goes up to K' > K. Is it possible that hebecomes worse off?

Eva utility=min(A/2,F/2)Endowment =20Adam utilityU=AAdam production function of figF=L

3. Consider an economy with two individuals, Eve and Adam. There are two goods-apples(A) and figs (F). Eve has fixed-coefficient preferences u(A, F) = min. where the superscript denotes e for Eve. Eve has an endowment of 20 apples and nothing else. Adam owns only labour, and consumes only apples, thus

3. Consider an economy with two individuals, Eve and Adam. There are two goods-apples(A) and figs (F). Eve has fixed-coefficient preferences u(A, F) = min. where the superscript denotes e for Eve. Eve has an endowment of 20 apples and nothing else. Adam owns only labour, and consumes only apples, thus

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter3: Preferences And Utility

Section: Chapter Questions

Problem 3.9P

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