Consider the following economy with production. There is a firm which can turn one unit of oranges into two apples, or two units of oranges into three apples. There is a consumer who is endowed with two oranges. The consumer sees apples and oranges as perfect complements, i.e. her utility function for consuming apples a and oranges o is, u = min(o, a) Restrict your attention to allocations that have only integer values - i.e. it is not possible to demand or supply fractional units of either good. 1. What is the set of Pareto Optimal allocations? (10 pts) 2. Consider the price system where po/pa = 2. What are the firm's profit-maximizing production plans? What are the firm's profits? (10 pts) 3. Is po/pa = 2 an equilibrium price ratio? Explain. (10 pts)

Exercise 3 30 pts Consider the following economy with production. There is a firm which can turn one unit of oranges into two apples, or two units of oranges into three apples. There is a consumer who is endowed with two oranges. The consumer sees apples and oranges as perfect complements. e. her utility function for consuming apples a and oranges o is. u = min(o. a) Restrict your attention to allocations that have only integer values .e. it is not possible to demand or supply fractional units of either good. 1. What is the set of Pareto Optimal allocations? (10 pts) .Consider the price system where pa/p. - 2. What are the firm's profit-maximizing production plans? What are the firm's profits? (10 pts) 3. Is po/pa - 2 an equilibrium price ratio? Explain. (10 pts) Exercise 4 30 pts