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Question
Imagine a primitive society in which there are two goods: food and shelter. The utility functions for two representative members of the society, Jane and Paul, are given below.Jane's utility function:
UJ = 25F0.5S0.5
Paul's utility function:
UP = 50F0.75S0.25
where F = units of food, and S = units of shelter.
a. Determine the marginal rate of substitution for each individual.
b. The current prices of food and shelter are $12 and $6, respectively. Determine the proportions in which Jane and Paul should consume food and clothing to achieve an exchange equilibrium.
Answer
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