Initially, Michael has 10 pizzas (Z), and 4 colas (C), and Tony has 4 pizzas and 10 colas. After a trade with Tony, Michael has 9 pizzas and 5 colas.

(a) In a properly labeled Edgeworth Box, label the initial allocation A and the new allocation B. Draw some indifference curves that are consistent with this trade

(b) Suppose Michael's utility function is given by

U(M) = Z + C and Tony's by U(T) = Z^0.5 x C^0.5.

What is MRS(ZC) for each of them?

(c) Is the trade described in the question consistent with Michael and Tony's preferences given in (b)? If so, is that allocation Pareto efficient?

(d) What does the price ratio Pz/Pc have to be equal to for Michael and Tony to trade to a Pareto efficient allocation? What allocation will they trade to?