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Albert and Bob consume video games and books. Albert has an initial endowment of 60 books and 20 video games. Bob has an initial endowment of 20...

Microeconomics Question 2

1. Albert and Bob consume video games and books. Albert has an initial endowment of 60 books and 20 video games. Bob has an initial endowment of 20 books and 30 video games. They have no other assets and make no trades with anyone other than each other. For Albert, two books and one video game are perfect substitutes. His utility function is U(b,g)=b+2g, where b is the number of books he consumers and g is the number of games he consumes. Bob’s preferences are more subtle and convex. He has a Cobb-Douglas utility function, U(b,g)=b*g. in the Edgeworth box below, Albert’s consumption is measured from the lower left, and Bob’s is measured from the upper right corner of box. a. At the equilibrium price how many books and games will Bob and Albert consume? Mark this point as F on the diagram.
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