Morris has the utility function U(b, w) = 3b + 3w and Philip has the utility function U(b, w) = bw, where b is the number of books consumed per month and w is bottles of wine consumed per month. If we draw an Edgeworth box with books on the horizontal axis and wine on the vertical axis and if we measure Morris's consumptions from the lower left corner of the box, then the contract curve contains

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Quizplus · Accepted Answer

Since Morris has a linear utility function and Philip has a Cobb-Douglas utility function, the contract curve will be a straight line. The contract curve represents the allocations that maximize the sum of their utilities while still satisfying their individual budget constraints. The slope of the contract curve will be equal to the ratio of the marginal utility of wine to the marginal utility of books for both individuals. Since Morris has a constant marginal utility for both books and wine, the slope of the contract curve will be constant. From Morris's perspective, the contract curve will start from the lower left corner of the box and run in the direction of the slope, which is equal to -1. From Philip's perspective, the contract curve will start from the upper right corner of the box and run in the direction of the slope, which is equal to -1 as well. Therefore, the correct answer is D, a straight line with slope -1 passing through the upper right corner of the box.

Morris Has the Utility Function U(b, W) = 3b