Consider a simple economy with two individuals, John and Marsha. The economy is endowed with 30 kilograms of cheese and 30 loaves of bread each month. John and Marsha's preferences for bread and cheese are given by their marginal rates of substitution of bread for cheese:

MRSjbc = 10/Xlb

MRSMbc = 5/XMb

where xjb is the quantity of bread consumed by John and XMb is the quantity of bread consumed by Marsha.

a. If each individual only had one loaf of bread, how much cheese would each individual be willing

to give up in order to have another loaf of bread?

b. In the initial allocation, each individual has 15 kilo-grams of cheese and 15 loaves of bread. Draw the Edge worth Box diagram for this economy and explain' whether the initial allocation of cheese and bread Pareto efficient.