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Problem 2. Consider the 2person and 2good exchange economy where agent i's (i = 1, 2) preference for consumption bundles (xii , x5) is represented
Problem 2. Consider the 2person and 2good exchange economy where agent i's (i = 1, 2) preference for consumption bundles (xii , x5) is represented by U'(xi,xi) = (xitxi and Uzixhi) = (xiixi. The initial endowment of agent i is denoted by (mi, mi) for each i = 1,2. The market price of good j is denoted by p}- for each j = 1, 2. Answer questions (1) (4). (1) Choose below all correct explanations regarding agent 1. (2 marks) 1 (a) The marginal rate of substitution of agent 1 is xZ. xi 1 (b) The marginal rate of substitution of agent 1 is gr- 1 (c) If (mi, mi) = (4, 4) and (p1, p2) = (4,5), the optimal consumption is (xi, xi) = (3, 4.8). (d) If (mi, mi) = (4, 3) and (p1, p2) = (3, 3), the optimal consumption is (xi, xi) = (4,8). (3) If (mi, mi) = (2, 4) and (151, p2) = (6,3), the optimal consumption is (xi, xi) = (4,4)
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