Suppose two individuals (Smith and Jones) each have 10 hours of labor to devote to producing either ice cream (X) or chicken soup (Y). Smith’s demand for X and Y is given by

a. What must the price ratio, PX/PY be?

b. Given this price ratio, how much X and Y will Smith and Jones demand? (Hint: Set the wage equal to 1 here so that each person’s income is 10.)

c. How should labor be allocated between X and Y to satisfy the demand calculated in part b?