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Ql. (Walrasian Equilibrium) Consider an economy with two goods: x and y, and two consumers: Ali and Bob. Let Px and P), be the prices
Ql. (Walrasian Equilibrium) Consider an economy with two goods: x and y, and two consumers: Ali and Bob. Let Px and P), be the prices for x and y. Ali's utility function is UA(x,y) = xy and his initial endowment is 8'4 = (0,4), (zero x and 4 y). Bob's utility function is U3(x,y) = lnx + lny and his initial endowment is 83 = (2,0). a. Calculate the Marshallian demand for both Ali and Bob in the form of [(XA, 3\"\"), (x3, YEN- b. Find the total demand for each good x and good y. c. Calculate the price ratio under general equilibrium. (Hint: the market clears when Demand = Supply) Now, with all the same settings of the questions above we introduce a firm into the economy. The firm produces good x by using good y as input, the production function is f(y) = J}. Bob owns the firm; he receives the profit 71'. d. Calculate the new optimal demand for Ali and Bob as well as the firm. in the form of [(xA, yA), (x3, YB), (35", YD]. (Hint: consider three agents separately). e. Find the market demand for each good x and good y. f. Calculate the new price ratio under general equilibrium
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