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pirex pirex
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7 years ago
Consider a society consisting of just a farmer and a tailor. The farmer has 10 units of food but no clothing. The tailor has 20 units of clothing but no food. Suppose each has the utility function U = F * C. Derive the contract curve.
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Microeconomics

Microeconomics


Edition: 6th
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#1
7 years ago
Let F and C denote the farmer's final allotment of food and clothing. Setting MRS's equal yields F/C = (10 - F)/(20 - C) or F/C = 1/2. The contract curve is a ray from the origin with a slope of 1/2 (assuming food is on the vertical axis).
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