Suppose there are two consumers, A and B. The utility functions of each consumer are given...

Suppose there are two consumers, A and B. The utility functions of each consumer are given by:

UA(X,Y) = X2Y UB(X,Y) = X*Y

Therefore: For consumer A: MUX = 2XY; MUY = X2

For consumer B: MUX = Y; MUY = X

The initial endowments are: A: X = 75; Y = 15 B: X = 75; Y = 5

a) (20 points) Suppose the price of Y, PY = 1. Calculate the price of X, PX that will lead to a competitive equilibrium. b) (8 points) How much of each good does each consumer demand in equilibrium? Consumer A's Demand for X: Consumer A's Demand for Y Consumer B's demand for X Consumer B's demand for Y

c) (4 points) What is the marginal rate of substitution for consumer A at the competitive equilibrium?

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Rahul Sunny answered 1 year ago

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