Consider an economy where there are two consumers: Leonel (L) and Alexia (A), and two goods: fish and mate.
Leonel has utility function: uL (FL,ML) = FαL M1−α L where α = 2/5 and is endowed with: 1 fish and 3 mates
The marginal utilities are uL,F (FL,ML) = αFα−1 L M1−α L for fish and uL,M (FL,ML) = (1 −α) FαL M−α L for mate
Alexia has utility function: uA (FA,MA) = Fβ AM1−β A where β = 1/2 and is endowed with: 3 fish and 1 mate
The marginal utilities are uA,F (FA,MA) = βFβ−1 A M1−β A for fish and uA,M (FA,MA) = (1 −β) Fβ AM−β A for mate
Draw the Edgeworth Box corresponding to this economy using the origin for Leonel on the lower left corner and the origin for Alexia in the up- per right corner. Place the initial endowment, calculate the utility levels at the initial endowment for Leonel and for Alexia, and represent graphically the corresponding indifference curves.
