Consider an economy with two goods, 1, 2, kind A, and an equal number of kind Bs. Assume the endowments of each A are (17, 3) and each B are (3, 7), and assume that the utility function for either an A or a B is u(x1, x2) = x1x2.

a.As carefully as you can, draw the Edgeworth rectangle for this exchange economy (put good 1 is on the horizontal axis). Draw the A and B indifference curves that pass through the endowment point, and the A and B offer curves. Label the endowment point E and the competitive equilibrium C.

b.In a new diagram, redraw the Edgeworth rectangle to illustrate the equilibrium in which the Bs have a monopsony in the good they are buying. Assume the Bs do not have the power to practice price discrimination. Label the equilibrium Y and label all the lines in your diagram.

c.In a third diagram, redraw the Edgeworth rectangle to illustrate the equilibrium in which the As have a monopoly in the good they are selling, and the As are able to practice perfect price discrimination. Label the equilibrium Z and label all the lines in your diagram.