Hello, could you please help me solve this excercise.Thank you very much! Question 4 (Please note that part a, b, and c are independent questions.Answer all parts)Part A [Word limit 500]Candice and Dominica are engaged in exchange over two goods: boxes of pens (x)and boxes of paper (y). They both have inequality averse preferences as defined bythe following equation.d¡ [u¡(Xi, Yi), Uj(xj, y¡)]= u¡ — 8¡max[u¡ — u¡, 0]—α¡max [u¡ — Uj,--o]We assume that a; and 8; are identical for Candice and Dominica. In this interaction,the two players each treats themselves as player i and their co-participant as playerj.The two players have the following initial endowments. Candice has 16 boxes ofpens and 4 of paper. Dominica has 4 of boxes pens and 46 of paper.a. Graph the Edgeworth box for the exchange between Candice and Dominicawhen they each have utilities that are Cobb-Douglas and take the followingform:1U₁ = x² y}y²Candice knows Dominica's utility takes this form, and vice versa. They usethis information when constructing their ; functions. Derive the equation ofthe contract curve. In your Edgeworth box, show their initial allocations, theirinitial indifference curves, and the contract.b. Referring to your Edgeworth box, explain the shape of the indifference curvesand how we determine a Pareto efficient allocation in the Edgeworth box.c. What would happen if a; increased? Explain by referring to your Edgeworthbox. It is useful to think about what happens to marginal utility with changes inthe consumption of pens and paper when a; changes.Part B [Word limit: 500]d. Leaving for holidays, Emma's luggage may be lost with probability p = 0. 1.The luggage and its content are estimated to be worth £316.05. Emma's utilityfunction over monetary payoffs is given by u(x)=√x. Suppose Emma caninsure against the loss of the luggage, what is the maximum insurancepremium / that Emma would be willing to pay?e. Using a diagram show and explain that a risk loving individual would declinethe offer of full insurance coverage on actuarially fair terms.

The Edgeworth box is a method used in economics to examine how resources are distributed among two…

Candice and Dominica are engaged in exchange over two goods: boxes of pens (x) and boxes of paper (y). They both have inequality averse preferences as defined by the following equation. di[u¡(xi, yi), uj(xj, yj)]= u¡ — 8¡max[u¡ — u¡, 0]—a¡max[u¡ — uj, 0] We assume that a; and 8; are identical for Candice and Dominica. In this interaction, the two players each treats themselves as player i and their co-participant as player j. The two players have the following initial endowments. Candice has 16 boxes of pens and 4 of paper. Dominica has 4 of boxes pens and 46 of paper. a. Graph the Edgeworth box for the exchange between Candice and Dominica when they each have utilities that are Cobb-Douglas and take the following form: U₁ = x₁² Y₁

Candice and Dominica are engaged in exchange over two goods: boxes of pens (x) and boxes of paper (y). They both have inequality averse preferences as defined by the following equation. di[u¡(xi, yi), uj(xj, yj)]= u¡ — 8¡max[u¡ — u¡, 0]—a¡max[u¡ — uj, 0] We assume that a; and 8; are identical for Candice and Dominica. In this interaction, the two players each treats themselves as player i and their co-participant as player j. The two players have the following initial endowments. Candice has 16 boxes of pens and 4 of paper. Dominica has 4 of boxes pens and 46 of paper. a. Graph the Edgeworth box for the exchange between Candice and Dominica when they each have utilities that are Cobb-Douglas and take the following form: U₁ = x₁² Y₁

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.13P

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