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Correct answer is 23. Consider an exchange economy with two consumers, Charlie and Doris, and two commodities, apples and bananas. Charlie's initial endowment is 6
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23. Consider an exchange economy with two consumers, Charlie and Doris, and two commodities, apples and bananas. Charlie's initial endowment is 6 apples and 3 bananas. Doris's initial endowment is 3 apples and 6 bananas. Charlie's utility function is U(Ac, Bc) = AcBe, where Ac denotes apples and Be denotes bananas consumed by Charlie. Doris's utility function is U(Ap, B,) = AB,, where A, denotes apples and Bo denotes bananas consumed by Doris. If apples are the numeraire so that the price of apples P =1, what is the competitive equilibrium price of bananas? A) PB 2 B) PB = 1 C) PR = 2 D) PB 3 E) PR = 3Step by Step Solution
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