Question: Consider two agents, A and B, with the following utility functions: uA(x A 1 , xA 2 ) = x A 1 +x A 2
Consider two agents, A and B, with the following utility functions: uA(x A 1 , xA 2 ) = x A 1 +x A 2 and UB(x B 1 , xB 2 ) = x B 1 x B 2 . Let the endowments be ( A 1 , A 2 ) = (8, 2), and ( B 1 , B 2 ) = (2, 8). Represent this situation in an Edgeworth box diagram. (1) Draw some indifference curves for each agent and an arrow pointing in the direction of increase in utility. (2) Derive the contract curve mathematically and draw it. (3) Represent graphically the individually rational allocations given the endowment. (4) Which allocations are in the core?
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