Question 3 Consider a simple two-person, one-good endowment economy in which in- = xi, for i...

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Question

Question 3 Consider a simple two-person, one-good endowment economy in which in- = xi, for i e {1,2}, and the given by U( div

Answer 1

Answer #1

1.

The given utility functions are:

$uX1 UX$

The feasibility constraint:

$X1+X2 W$

Substituting the value of the utility functions in the feasibility constraint:

$U2W 2 Wu$

2.

$uX X1 =u$

Substituting the value of new utility function for consumer 1 in the feasibility constraint:

$X1X2 = W Vu U2 = W U2 W u$

Is the new utility possibilities frontier.

Answer 2