Question
Consider a 2 person, 2 goods exchange economy. Suppose Ashley's utility function is given by uA(x1A, x2A) = (x1A)^(1/5)(x2A)^(4/5), where x1A is the amount Ashley
Consider a 2 person, 2 goods exchange economy. Suppose Ashley's utility function is given by uA(x1A, x2A) = (x1A)^(1/5)(x2A)^(4/5), where x1A is the amount Ashley consumes of good 1 and x2A is the amount Ashley consumes of good 2. Brady's utility function is given by uB (x1B , x2B ) = (x1B)(x2B)^4, where x1B is the amount Brady consumes of good 1 and x2B is the amount Brady consumes of good 2. Initially, Ashley has 10 units of good 1 and 30 units of good 2. Brady has 40 units of good 1 and 10 units of good 2.
Suppose Ashley consumes 16 units of good 1. How many units of good 2 would she need to consume in order for this allocation to be Pareto efficient assuming that Brady would consume the all of the remaining aggregate endowment? Calculate and round if necessary to one decimal.
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