John and Emily are both suppliers of complete packages of printers and supplies. Suppose the manufacturers of printing paper and ink cartridges have...
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2.     John and Emily are both suppliers of complete packages of printers and supplies. Suppose the

manufacturers of printing paper and ink cartridges have gone on strike. John has 100 cases of paper left, but he has ink cartridges in stock for only 20 printers. On the other hand, Emily has enough ink cartridges for 100 printers, and only 20 cases of paper.

 

a.     Based on the above information, draw an Edgeworth box. Label the lower left corner of the box "John's printers" and the upper right corner of the box "Emily's printers." Label the vertical side of the box as printers and the horizontal side as ink cartridges. Label the initial endowment point with the letter A.

b.     Now sketch into your Edgeworth box the isoquant for both John and Emily that reflects the fact that ink cartridges and printer paper are perfect complements.

 

c.      Explain why the initial starting point is optimal or not, using the words "marginal rate of technical substitution."

d.     If no trade of inputs takes place, and neither supplier can get outside parts, how many complete printer packages can be sold by these suppliers?

e.     If John and Emily exchange inputs until they reach the contract curve, how many printer packages will be produced if all resources are used?

f.       How will the sales be divided up between John and Emily if both have equal bargaining power?

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