Answer to Question #140674 in Microeconomics for Khushi

Question

Neha and Sonam consume only Coke and Pepsi in a two person and two goods exchange economy. Neha

consumes these two goods in fixed proportions such that she consumes 2 bottles of coke with 1 bottle of Pepsi.

Sonam's utility function is given by U = 4P + 3C . In the economy, there is a total of 100 bottles of Pepsi and 200

bottles of Coke. If Neha initially had 60 bottles of Pepsi and 80 bottles of coke, then in the equilibrium position,

Sonam will consume:

A. between 50 to 60 bottles of Pepsi

B. between 52 to 60 bottles of Pepsi

C. between 54 to 60 bottles of Pepsi

D. between 56 to 60 bottles of Pepsi

Answer 1

If Neha initially had 60 bottles of Pepsi and 80 bottles of coke, then in the equilibrium position he will be ready to give to Sonam between 10 to 20 bottles of Pepsi to consume between 80 and 100 bottles of coke, up to 20 bottles of coke he can get from Sonam. So, Sonam will consume the remaining between 50 to 60 bottles of Pepsi and between 100 and 120 bottles of coke.

That's why the correct answer is A.