Question

keegan and barbara live in a jungle in the south Luangwa National Park. the Consume only two goods mangoes (M) and finkubala (F). Currently Keegan consumes 10M's and 5f's, while Barbara consumes 3M's and 9F's. keegan's marginals rate of substitution for M to F is one and Barbara's Marginal rate of substitution is 0.5.

a) Define Pareto optimal Allocation.

b) Is the allocation provided above Pareto efficient? If so, explain why. If not, show a possible Pareto improvement.

c) If there was a competitive market for each type of posters, would these markets produce Pareto efficient allocation?