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Suppose there are two consumers, A and B.
The utility functions of each consumer are given by:
UA(X,Y) = XY3
UB(X,Y) = X*Y
Therefore:
The initial endowments are:
A: X = 16; Y = 28
B: X = 54; Y = 12
a) Suppose the price of Y, PY = 1. Calculate the price of X, PX that will lead to a competitive equilibrium.
b) 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) What is the marginal rate of substitution for consumer A at the competitive equilibrium?
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