Answer to Question #82464 in Microeconomics for Preet

Question

Angie has 12 cookies, and a marginal value curve described by P = 45 - 3QA, while Benny has zero cookies, and a marginal value curve described by P = 44 - QB.
a) Draw a three-sided trade diagram, with Benny's marginal value curve going
from left to right, and Angie's going from right to left. Be careful to state how wide the diagram is in terms of units of cookies. Draw both marginal value curves in this diagram.
b) How might we interpret Angie's marginal value curve in this context? What are their marginal values before trade?
c) After trade, how many cookies do each of them have? What is the marginal value of each person after trade?
d) If we assume that all cookies traded at a price equal to the final marginal values, what are the consumer and seller surplus from trade?

Answer 1

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