1. Morris Zapp and Philip Swallow consume coffee (c) and tea (t). Morris has an initial endowment of 60 bagsof coffee and 10 bags of tea. Philip has an initial endowment of 20 bags of coffee and 30 bags of tea. Theyhave no other assets and make no trades with anyone other than each other. For Morris, coffee and tea aresubstitutes. His utility function is U (c, t) = c + 2t. Philip's preferences are more subtle and convex. Hehas a Cobb-Douglas utility function, U (c, t) = c²t.A. Draw an Edgeworth box where Morris's consumption is measured from the lower left, and Philip's ismeasured from the upper right corner of the box.B. On this Edgeworth box, mark the initial endowment point and label it E.C. Use red ink to draw Morris Zapp's indifference curve that passes through his initial endowment.D. Use blue ink to draw Philip Swallow's indifference curve that passes through his initial endowment.E. Shade the area that represents the set of Pareto-Improving points.F. Find the condition for Pareto-Optimal allocation.

Answered: 1. Morris Zapp and Philip Swallow…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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