Question

1. SHORT ANSWER QUESTIONS 1. Explain why utility maximization requires that a consumer's budget is allocated so that the marginal utility per dollar of expenditure is the same for each good. 2. Theresa likes to talk on the telephone. We can represent her preferences with the utility function U(B,J)12B 24J, where B and J are minutes of conversation per month with Bill and Jackie respectivcly. What is the formula for her indiffcrencc curve to get U units of utility (that is, at utility of U, write the formula for an indifference curve with J on the vertical axis and B on the horizontal axis)? What is her marginal rate of substitution of minutes talking to Bill for minutes talking to Jackic?

Answer 1

In case of consumer consumption optimization based on limited budget constraint, it is important to make full that consumption occus at the point where M U per dollar spent o;n one goo;d equals M U per dollar spent on another good . This is important because it helps consumers allocate their budget in a way that the per dollar return on each good us equal and there is no bias on any good . this helps in achieving both equity and efficiency (as per HomeworkLib policy answered first question)