Ken’s utility function is uK(x1, x2) = x1 + x2 and Barbie’s utility function is uB(x1, x2) = (x1 + 1) (x2 + 1). A person can buy 1 unit of good 1 or 0 units of good 1. It is impossible for anybody to buy fractional units or to buy more than 1 unit. Either person can buy any quantity of good 2 that he or she can afford at a price of $1 per unit.
(a) Where m is Barbie’s wealth and p1 is the price of good 1, write an equation that can be solved to find Barbie’s reservation price for good 1.________. What is Barbie’s reservation price for good 1? _________. What is Ken’s reservation price for good 1? ______.
(b) If Ken and Barbie each have a wealth of 3, plot the market demand curve for good 1.