Question
Ken McSubstitute and Ron O'Compliment were flying to a fast food festival in Fiji when an unexpected storm forced their plane to ditch in the
Ken McSubstitute and Ron O'Compliment were flying to a fast food festival in Fiji when an unexpected storm forced their plane to ditch in the middle of the Pacific. Miraculously, they are washed up on a desert island. Ken finds that he has only 5 slightly wet hamburgers and 15 orders of fries in his pockets. Ron discovers that he has 15 hamburgers and 5 orders of fries. Ken only cares about how much he gets to eat. His utility function is: UK(H,F) = H + F Ron, on the other hand, believes that it is uncivilized to eat hamburgers without french fries or french fries without hamburgers. His utility function is: UR(H,F) = min[H,F] In an Edgeworth box: a. Show the endowment point and the contract curve (the set of Pareto optimal allocations). b. What is the competitive equilibrium (be sure to identify both the price(s) and quantities)? c. Is the competitive equilibrium Pareto optimal?
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