Any parts appreciated the more the better. 7. a. Consider an exchange economy with two goods and two individuals. Alice always requiresequal quantities of the two goods. Bob's expenditure on good 1 is always twice his expenditureon good 2. Suppose that Alice's endowment consists of 5 units of good 1 and no good 2 w4 =(5,0) and Bob's endowment consists of 1 unit of good 1 and 6 units of good 2, wB = (1,6).i. Suggest utility functions consistent with their behaviour and verify your answer. Drawa typical indifference curve for each individual.ii.Determine the contract curve. Illustrate it in an Edgeworth box.ii.Determine the competitive equilibrium price ratio and the consumptions. Illustrate theequilibrium in an Edgeworth box.iv.Now suppose that there is an additional individual named Cindy in the economy. Shenever consumes good 2. Her endowment consists of no good 1 and unit of good 2wB = (0,2). Suggest a utility function for Cindy and draw a typical indifference curve.Determine the competitive equilibrium price ratio. Determine the effect on equilibriumprice ratio and utilities if 4 units of good 1 were given to Cindy (NOT a transfer fromthe other two consumers)? Provide an intuitive explanation for your answer.b. Suppose each firm in a competitive industry has a production technology described by theproduction function f(l,k) = (min (I, 4k))'/2. The price of labour per unit is 2 and the price ofcapital per unit is 4, and each firm faces a recurring fixed cost of 300 (Firms incur fixed costs evenin the long run, however, not due to fixed labour or fixed capital).Suppose the market demand is given by Qd = 560 – P. Determine the long-runequilibrium price and number of firms in the industry.i.ii.Assume that the amount of capital is fixed at ko = 25 and that labour is variable.Derive the short run total cost function for each firm. Using the number of firms foundin part (b.i), derive and graph the short run market supply function.

*Hi there , as you have posted multiple sub parts , we are only allowed to solve first three .…

7. a. Consider an exchange economy with two goods and two individuals. Alice always requires equal quantities of the two goods. Bob's expenditure on good 1 is always twice his expenditure on good 2. Suppose that Alice's endowment consists of 5 units of good 1 and no good 2 wA = (5,0) and Bob's endowment consists of 1 unit of good 1 and 6 units of good 2, w® = (1,6). i. Suggest utility functions consistent with their behaviour and verify your answer. Draw a typical indifference curve for each individual.

7. a. Consider an exchange economy with two goods and two individuals. Alice always requires equal quantities of the two goods. Bob's expenditure on good 1 is always twice his expenditure on good 2. Suppose that Alice's endowment consists of 5 units of good 1 and no good 2 wA = (5,0) and Bob's endowment consists of 1 unit of good 1 and 6 units of good 2, w® = (1,6). i. Suggest utility functions consistent with their behaviour and verify your answer. Draw a typical indifference curve for each individual.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Any parts appreciated the more the better.

7. a. Consider an exchange economy with two goods and two individuals. Alice always requires
equal quantities of the two goods. Bob's expenditure on good 1 is always twice his expenditure
on good 2. Suppose that Alice's endowment consists of 5 units of good 1 and no good 2 w4 =
(5,0) and Bob's endowment consists of 1 unit of good 1 and 6 units of good 2, wB = (1,6).
i. Suggest utility functions consistent with their behaviour and verify your answer. Draw
a typical indifference curve for each individual.
ii.
Determine the contract curve. Illustrate it in an Edgeworth box.
ii.
Determine the competitive equilibrium price ratio and the consumptions. Illustrate the
equilibrium in an Edgeworth box.
iv.
Now suppose that there is an additional individual named Cindy in the economy. She
never consumes good 2. Her endowment consists of no good 1 and unit of good 2
wB = (0,2). Suggest a utility function for Cindy and draw a typical indifference curve.
Determine the competitive equilibrium price ratio. Determine the effect on equilibrium
price ratio and utilities if 4 units of good 1 were given to Cindy (NOT a transfer from
the other two consumers)? Provide an intuitive explanation for your answer.
b. Suppose each firm in a competitive industry has a production technology described by the
production function f(l,k) = (min (I, 4k))'/2. The price of labour per unit is 2 and the price of
capital per unit is 4, and each firm faces a recurring fixed cost of 300 (Firms incur fixed costs even
in the long run, however, not due to fixed labour or fixed capital).
Suppose the market demand is given by Qd = 560 – P. Determine the long-run
equilibrium price and number of firms in the industry.
i.
ii.
Assume that the amount of capital is fixed at ko = 25 and that labour is variable.
Derive the short run total cost function for each firm. Using the number of firms found
in part (b.i), derive and graph the short run market supply function.

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