Assume the following: There are two investors (A and B), two states (1 and 2), and...
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Assume the following: There are two investors (A and B), two states (1 and 2), and the two Arrow-Debreu securities are traded. Initial endowments are as follows: - A has 1 unit of A-D security 1, and 0.5 units of A-D security 2. -B has 1 unit of A-D security 1, and 1.5 units of A-D security 2. Preferences are as follows: - - For A, we have UA (x^, x^) = x^x^, where x is A's amount of the A-D security in state i. For B, we have UB (x, x) = x+2x, where x is B's amount of the A-D security in state i. Answer the following questions: a. Represent the investors' initial allocations and preferences in an Edgeworth box. Assume the following: There are two investors (A and B), two states (1 and 2), and the two Arrow-Debreu securities are traded. Initial endowments are as follows: - A has 1 unit of A-D security 1, and 0.5 units of A-D security 2. -B has 1 unit of A-D security 1, and 1.5 units of A-D security 2. Preferences are as follows: - - For A, we have UA (x^, x^) = x^x^, where x is A's amount of the A-D security in state i. For B, we have UB (x, x) = x+2x, where x is B's amount of the A-D security in state i. Answer the following questions: a. Represent the investors' initial allocations and preferences in an Edgeworth box.
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