Calculate the competitive equilibrium

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Reference no: EM131387141

Alex has a utility function for goods X and Y given by u_A(X_A, Y_A) = X_A + Y_A, while Bernie's utility function is u_B(X_B, Y_B) = X_BY_B. Suppose that Alex's endowment is (X_A^epsilon, Y_A^epsilon) = (5, 7). and Bernie's endowment is (X_B^epsilon Y_B^epsilon) = (4, 2). Sketch the Edgeworth box with the endowment point, and indicate the set of Pareto Efficient points. What docs Pareto efficiency tell you about the equilibrium price ratio? Calculate the competitive equilibrium, and graph in the budget line and indicate the equilibrium allocation in your sketch.

Reference no: EM131387141

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