Draw the edgeworth box including their endowment point

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Jimmy and Ronnie are shipwrecked on a deserted isle. Jimmy has with him 20 bags of peanuts and 4 bags of jellybeans. Ronnie has 5 bags of peanuts and 16 bags of jellybeans. Assume they both like peanuts and jellybeans and have normal preferences.

a. Draw the Edgeworth box including their endowment point. Put Peanuts on x-axis.

b. Is it possible that no exchange occurs between them? Explain and show with a graph. Re-draw the Edgeworth box with the endowment and their indifference curves so that at their initial endowment some exchange will occur.

c. Show the possible area that Pareto Efficient exchange leads to.

d. Show the best possible exchange that Jimmy could get and Ronnie would accept.

e. (Advanced) Is there a single price Jimmy could offer Ronnie (how many peanuts for 1 jellybean and Ronnie chooses how much to buy) such that the exchange would lead them to point D? Show.

Reference no: EM131246067

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