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Leto and Ghanima also consume only melange (M) and water (W)

Economics Sep 30, 2020

Leto and Ghanima also consume only melange (M) and water (W). Leto's utility function is U.(M,W)=M+3W. Ghanima's utility function is U (M,W)=3M+W. a. Suppose both Leto and Ghanima consume 5 units of melange and 5 units of water. Calculate Leto's utility and Ghanima's utility for this bundle. (2 point) b. Draw a graph showing Leto's indifference curve passing through the point (5,5). Label it IC. (3 points) C. On the same graph, draw Ghanima's indifference curve passing through (5,5), Label it IC. (3 points) d. Find another bundle that Ghanima strictly prefers to (5,5), but leto considers strictly worse than (5,5). Show this bundle on your graph below and label it point D. (4 points) e. Find another bundle that Leto strictly prefers to (5,5), but Ghanima considers strictly worse than (5,5). Show this bundle on your graph below and label it point E. (4 points) f. Calculate Leto's marginal rate of substitution and Ghanima's marginal rate of substitution at the bundle (5,5). (4 points) g. Again, suppose Leto and Ghanima currently have 5 units of melange and 5 units of water each, so that in total between them, there are 10 units of melange and 10 units of water. Can you find any possible trade (an alternative allocation of melange and water) that would make them both strictly better off than the current allocation? (5 points)

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