5. (b) Consider the two-person, two goods economy given by: W₁ = (1/2, 1/2) U₁ = 2X11 + X12, U2=X21 + 2X22, W₂ = (1/2, 1/2) (i) Solve for a competitive equilibrium (ii) Show that the MRS of person 1 = MRS of person 2 does not hold at competitive equilibrium. (iii) Is competitive equilibrium Pareto Optimal? Why?

5. (b) Consider the two-person, two goods economy given by: W₁ = (1/2, 1/2) U₁ = 2X11 + X12, U2=X21 + 2X22, W₂ = (1/2, 1/2) (i) Solve for a competitive equilibrium (ii) Show that the MRS of person 1 = MRS of person 2 does not hold at competitive equilibrium. (iii) Is competitive equilibrium Pareto Optimal? Why?

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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