Need soon,, You are given the followingProduction Possibility Frontier (PPF):x2 + Y = 1728Suppose that the society's utilityfunction is given by: U = XYwhere X and Y are two commodities.(a) Derive the point on the PPF thatmaximises utility. Calculate the utilityassociated with this combination.(b) Assume the economy is nowopened to international trade. X andY are traded on the basis of one unitof Y for every unit of X [Hint: (Xp-Xc) = (Yc -Yp), where Xp and Ycare the respective amounts of goodsX and Y produced while Xc and Ycare the respective amounts of goodsX and Y consumed]. Write down theconstrained maximization problemand solve for optimal production,trade, and consumption.(c) Show that utility has increasedwith international trade.

at the society's utility iven by: U = XY dY are two commodities e point on the PPF that tility. Calculate the utility vith this combination. che economy is now hternational trade. X and I on the basis of one unit -y unit of X [Hint: (Xp

at the society's utility iven by: U = XY dY are two commodities e point on the PPF that tility. Calculate the utility vith this combination. che economy is now hternational trade. X and I on the basis of one unit -y unit of X [Hint: (Xp

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.1P

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Question

Need soon,,

You are given the following
Production Possibility Frontier (PPF):
x2 + Y = 1728
Suppose that the society's utility
function is given by: U = XY
where X and Y are two commodities.
(a) Derive the point on the PPF that
maximises utility. Calculate the utility
associated with this combination.
(b) Assume the economy is now
opened to international trade. X and
Y are traded on the basis of one unit
of Y for every unit of X [Hint: (Xp
-Xc) = (Yc -Yp), where Xp and Yc
are the respective amounts of goods
X and Y produced while Xc and Yc
are the respective amounts of goods
X and Y consumed]. Write down the
constrained maximization problem
and solve for optimal production,
trade, and consumption.
(c) Show that utility has increased
with international trade.

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