Question

nole of a utility Ulany (There are ly need to write bagels Will LUM consumption bundle. Give an example function that Ramses might have. The many right answers, but you only need down one.) d. Draw Ramses's indifference curve for same graph as in part (b). ve for U = 1 on 12 Milk Duds. ith M&Msis 4 that Antonio's e Kate one of his of M&Ms. How has 24 M&Ms and Antonio has 12 Mi pose Kate's MRS for Milk Duds with M regardless of what she consumes, and that 3 regardless of what he consumes. a. Suppose Antonio offers to trade Kate on Milk Duds for a certain number of M&M many M&Ms will Kate be willing to give u this Milk Dud? How many M&Ms does An require for this trade to make him at least off as he was before the trade? b. Suppose that Kate and Antonio trade until there is no further opportunity for mutual gain. What ca you say about how many Milk Duds and M&Ms they will each have? Ms does Antonio Then connect bnsider the utility function U(X, Y) = x + ylls, Calculat

Answer 1

12.a) Kate is willing to substitute 4 M&Ms for 1 milk dud as her MRS is 4. So Kate will be willing to give up 4 M&Ms at maximum for 1 milk dud. Antonio can give up 3 milk duds for 1 M&M, hence at least 1/3 M&Ms to make the trade successful.

b) Kate will have 4 M&Ms and Antonio will have 3 milk duds in the end after which they can trade no more.