QUESTION 3. Two economic agents, A and B, value successive units of a good (from the 1st unit to the 10th unit) as follows:

Units: A's Marginal Valuation B's Marginal Valuation

1 $8 $10

2 $7 $9

3 $7 $8

4 $5 $7

5 $5 $6

6 $4 $4

7 $3 $2

8 $2 $1

9 $1 $1

10 $0 $0

Initially, A owns 8 units and B owns 2 units.

A) If neither agent has a budget constraint, who will be the buyer, and who will be the seller? Justify your answer clearly.

B) On the graph below, draw the buyer's demand curve, and the seller's "marginal cost" curve.

C) What is the efficient quantity traded? Clearly justify your answer.

D) What is the interval of unit prices for which the efficient trade may take place?

E) If the agents decide on a unit price that is in the middle of the interval found in D), what will be the surplus for the buyer? For the seller?

F) If the price is inside the interval found in D), but not in the middle, how would your answer differ from your answer in E) (no calculation required)? Will it affect the efficiency of the trade? Explain briefly.