Remy and Emile consume only blueberries (x,) and raspberries (x,). Remy has utility function UR =x (x5)² and Emile has utility function UE = (xf)²x. Remy is endowed with 5 blueberries and 5raspberries and Emile is endowed with 10 blueberries and 10 raspberries.(a) Derive the equation of the contract curve, i.e., find x%(xf).(b) Set x2 as the numeraire, i.e., assume p, = p and p2 = 1. Find the competitive equilibrium – theequilibrium price ratio, P1/P2, and the equilibrium allocation, ((xf, x5), (xf,x£ )).

Answer: Given, The utility function of Remy: UR=x1Rx2R2 The utility function of Emile: UE=x1E2x2E…

Remy and Emile consume only blueberries (x1) and raspberries (x2). Remy has utility function U* = xf (x£)² and Emile has utility function UE raspberries and Emile is endowed with 10 blueberries and 10 raspberries. (xf)²x5 . Remy is endowed with 5 blueberries and 5 = (a) Derive the equation of the contract curve, i.e., find x (xf). (b) Set x2 as the numeraire, i.e., assume p, = p and p2 = 1. Find the competitive equilibrium – the equilibrium price ratio, P1/P2, and the equilibrium allocation, ((xf, x£), (xf, x5)).

Remy and Emile consume only blueberries (x1) and raspberries (x2). Remy has utility function U* = xf (x£)² and Emile has utility function UE raspberries and Emile is endowed with 10 blueberries and 10 raspberries. (xf)²x5 . Remy is endowed with 5 blueberries and 5 = (a) Derive the equation of the contract curve, i.e., find x (xf). (b) Set x2 as the numeraire, i.e., assume p, = p and p2 = 1. Find the competitive equilibrium – the equilibrium price ratio, P1/P2, and the equilibrium allocation, ((xf, x£), (xf, x5)).

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter7: Consumer Choice: Maximizing Utility And Behavioral Economics

Section: Chapter Questions

Problem 1WNG

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