Problem 12 Kate has 24 MMs and Antonio has 12 Milk Duds. Suppose Kate’s MRS for Milk Duds with MMs is 4 regardless of what she consumes, and that…

Problem 12

Kate has 24 M&Ms and Antonio has 12 Milk Duds. Suppose Kate’s MRS for Milk Duds with M&Ms is 4 regardless of what she consumes, and that Antonio’s is 3 regardless of what he consumes.

a) Suppose Antonio offers to trade Kate one of his Milk Duds for a certain number of M&Ms. How many M&Ms will Kate be willing to give up for this Milk Dud? How many M&Ms does Antonio require for this trade to make him at least as well off as he was before the trade?

b) Suppose that Kate and Antonio trade until there is no further opportunity for mutual gain. What can you say about how many Milk Duds and M&Ms they will each have? 

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