U(x₁ʲ,x₂ʲ) = √x₁ʲ √x₂ʲ, for j , for j = A, B. Let the initial endowments be given as follows: Wᴬ = (15,10) Wᴮ = (10,15) Draw an Edgeworth box for the initial allocation and sketch the indifference curves. Is the allocation Pareto efficient? If yes, explain why. If no, explain why not.
The Marshallian demands of consumers A and B are given by x₁ʲ(M, P₁, P₂) = M/2P₁ and x₂ʲ (M,P₁, P₂) = M/2P₂ where M represents the value of the initial endowment. Determine the Walrasian equi- librium for the initial endowments given in c).