Two individuals, A and B, have the following utility functions UA min {x¹, y^} UB min {x¹, y³} = and the endowments are of the same unit and quantity: x = y = 100. (a) Sketch the Edgeworth box and draw the contract curve. (b) If A has a different utility function UA = x² + y^ would the contract curve be different? Explain. (c) If we add the production of goods x and y in the economy, and the technology is con- stant return to scale for both goods, can the competitive equilibrium still be achieved? Explained.

Two individuals, A and B, have the following utility functions UA min {x¹, y^} UB min {x¹, y³} = and the endowments are of the same unit and quantity: x = y = 100. (a) Sketch the Edgeworth box and draw the contract curve. (b) If A has a different utility function UA = x² + y^ would the contract curve be different? Explain. (c) If we add the production of goods x and y in the economy, and the technology is con- stant return to scale for both goods, can the competitive equilibrium still be achieved? Explained.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.5P

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