Consider an exchange economy (no production). This economy is populated by two individuals, Al and Betty, with endowments as follows. Al: (50, 10), and Betty (50, 40), for goods 1 and, respectively. Their utility functions are as follows. Al's utility = (x₁)²(x₂), Betty's utility: (x₁)(x₂)².
a)Do the two utility functions follow the standard assumptions of an exchange economy?
b)Calculate the price that would result if Al and Betty trade on perfectly competitive markets.
c)Calculate the amounts of x1 and x2 traded by Al and Betty.

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The Answer of Consider an exchange economy (no production). This economy is populated by two individuals, Al and Betty, with endowments as follows. Al: (50, 10), and Betty (50, 40), for goods 1 and, respectively. Their utility functions are as follows. Al's utility = (x₁)²(x₂), Betty's utility: (x₁)(x₂)². a)Do the two utility functions follow the standard assumptions of an exchange economy? b)Calculate the price that would result if Al and Betty trade on perfectly competitive markets. c)Calculate the amounts of x1 and x2 traded by Al and Betty.

Consider an Exchange Economy (No Production)