Pure exchange economy. Consider Jack and Melinda in the pure exchange economy, represented on a graph below. Jack likes mangoes, but is indifferent to kiwi (consuming more or fewer kiwis does not affect his utility). Melinda's preferences over mango and kiwi are strictly convex and satisfy "more is better" assumption. They are shown by blue indifference curves in the Edgeworth box (E-box). a) [2 points] Show an equitable allocation of goods (where each individual consumes exactly half of each good) in the E-box. Call this allocation A. Is it Pareto optimal (P.O.)? If yes, please explain why. If not, show all allocations that Pareto dominate allocation A. b) [2 points] Repeat part a) for allocation B, in which Jack consumers half of all mangoes and no kiwis. c) [2 points] Repeat part a) for allocation C, in which Melinda consumes half of all kiwis and no mangoes. d) [4 points] Draw the contract curve in the Edgeworth box. Provide an explanation.
