Two consumers, 1 and 2, consume two goods, x and y. Consumer 1 is endowed with
5 units of x and 8 units of y, the marginal utilities of x and y are constant, such that
1
M U 1
x = 20 and M U 1
y = 40. For consumer 2, which uses 15 units of x and 4 units of y, the
marginal products are M U 2
x = 60 and M U 2
y = 30.
(a) Draw an Edgeworth box for inputs that shows the allocation of goods across these
two consumers.
(b) Is this allocation of inputs economically efficient? Why or why not? If it is not,
identify a reallocation of inputs that would allow both consumers to increase their
outputs.