QUESTION 4 Linguini and Colette consume only éclair (x,) and profiterole (x,). Linguini has utility function UA = xfx£ and Colette has utility function U" = 2xf x£. Linguini is endowed with 10 éclair (x,) and 3 profiterole (x,), while Colette is endowed with 20 éclair (x,) and 9 profiterole (r,). (w) Draw an Edgeworth box with x, on the horizontal axis and x2 on the vertical axis. Position Linguini on the bottom left corner and Colette on the top right corner. Indicate the total number of units of x, and x2. Label the endowment allocation. (b) Derive the equation of the contract curve, ie., find x†(xf). In your graph in (a), draw the contract curve. Suppose the price of éclair (x,) is $1 and the price of profiterole (x,) is $2. (e) Find each consumer's utilitymaximizing basket.
QUESTION 4 Linguini and Colette consume only éclair (x,) and profiterole (x,). Linguini has utility function UA = xfx£ and Colette has utility function U" = 2xf x£. Linguini is endowed with 10 éclair (x,) and 3 profiterole (x,), while Colette is endowed with 20 éclair (x,) and 9 profiterole (r,). (w) Draw an Edgeworth box with x, on the horizontal axis and x2 on the vertical axis. Position Linguini on the bottom left corner and Colette on the top right corner. Indicate the total number of units of x, and x2. Label the endowment allocation. (b) Derive the equation of the contract curve, ie., find x†(xf). In your graph in (a), draw the contract curve. Suppose the price of éclair (x,) is $1 and the price of profiterole (x,) is $2. (e) Find each consumer's utilitymaximizing basket.
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.14P
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