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Problem 4. (10 Points total) Suppose a stranded island is discovered by two best friends: Dante and Joan. Excitedly they run to their yacht
Problem 4. (10 Points total) Suppose a stranded island is discovered by two best friends: Dante and Joan. Excitedly they run to their yacht to tell everyone but they find their only mode of transportation has spontaneously combusted, exploded and now is a smoldering heap of useless rubble. They quickly realize the situation is dire and hurry to collect any resource they could find. Unfortunately for them this island is barren with only two resources that are of any use: oranges and coconuts. After a quick plundering session, they each end up with the following endowments: Dante has 80 oranges and 50 coconuts, while Joan gathered 20 oranges and 100 coconuts. A) (5 Points) With survival on the line suppose they both decide to act selfishly and would trade only if there is a resulting gain in utility. Create and Edgeworth's Box using the information given. Highlight the initial endowment for each shipwrecked sailor. Create a contract line and show the equation of that line (in general terms, no calculations needed). Lastly, given that their indifference curves are not tangent at the initial endowment show the how to find the Pareto efficient core using your contract line.
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