191hw6sol

191hw6sol - ECON191 Spring 2009 Outline of suggested...

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1 ECON191 Spring 2009 Outline of suggested solutions to Problem Set 6 Question 1 (a) Endowment point: E (b) xy A U = ) ( , along an indifference curve, 0 ) ( = A dU 0 ) ( = + = y y x x d MU d MU A dU J x y y A U x A U MU MU dx dy y x forA = = = / ) ( / ) ( (c) ) 80 ln( ) 120 ln( ln ) ( * * y x y x B U + = = , along an indifference curve 0 ) ( = B dU 0 ) ( = + = y y x x d MU d MU B dU 0 ) ( ) ( = + dy y B U dx x B U 0 80 120 = y dy x dx J x y dx dy forB = 120 80 (d) On the Contract curve, the indifference curves for A and B are tangent to each other. Therefore, x y x y = 120 80 Contract curve: x y 3 2 = (e) Slope of the indifference curve for A: 3 2 = x y on the contract curve Slope of the indifference curve for B: 3 2 120 80 = x y on the contract curve (f) From the above information, the competitive equilibrium for A must be at 30 = x , 30 = y and 90 120 * = = x x 60 120 * = = y
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This note was uploaded on 10/11/2009 for the course ECON 191 taught by Professor Chen during the Spring '08 term at HKUST.

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191hw6sol - ECON191 Spring 2009 Outline of suggested...

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