Persons 1 and 2 have the following utility functions over goods x and y:Person 1: U1(x1, y1) = min{2x1, y1} Person 2: U2(x2, y2) = x2 + y2Person 1 has an endowment of e1 = (2, 1). Betty’s endowment is e2 = (1, 2).Graph the Edgeworth Box for this economy. Draw each person’s indifference curve through the endowment point. Are there allocations that Pareto dominate the endowment? If so, show them on the diagram. Also, identify which allocations are Pareto optimal relative to the endowment point.Solve for the contact curve for this economy. Illustrate it in the Edgeworth Box.

Answered: Persons 1 and 2 have the following…

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Chapter1: Making Economics Decisions

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Problem 1QTC

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Persons 1 and 2 have the following utility functions over goods x and y:

Person 1: U1(x1, y1) = min{2x1, y1} Person 2: U2(x2, y2) = x2 + y2

Person 1 has an endowment of e1 = (2, 1). Betty’s endowment is e2 = (1, 2).

Graph the Edgeworth Box for this economy. Draw each person’s indifference curve through the endowment point. Are there allocations that Pareto dominate the endowment? If so, show them on the diagram. Also, identify which allocations are Pareto optimal relative to the endowment point.
Solve for the contact curve for this economy. Illustrate it in the Edgeworth Box.

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