Jake and Noelle are thinking about trading some candy. Jake has 1 M&M and 9 Starburst; Noelle has 9 M&Ms and 1 Starburst. Jake's preferences can be represented with the utility function U(M, S) = M × S while Noelle's preferences can be represented with the utility function U(M, S) = M + S
a. At Jake's initial bundle of M&Ms and Starburst, what is his MRSMS? What is Noelle's MRSMS at her initial bundle?
b. Draw an Edgeworth box showing the initial bundles for Jake and Noelle, Jake's indifference curve through his initial bundle, and Noelle's indifference curve through her initial bundle. Are there any trades that would make them both better off? If so, show in the Edgeworth box the bundles that would result from those trades.
c. A trade is "efficient" if it makes both Jake and Noelle better off, and if there is no way to make both of them even better off through some additional trade. Which trades between Jake and Noelle are efficient? Find all of them.