Assume Carolyn is given a bundle on her budget constraint where her MRSFC = 2. Also assume the price of a unit of food equals $3 and the price of a unit of clothes equals $6. Should Carolyn buy more food or more clothes to maximize her utility? Why? Explain in detail.
Here, slope of the indifference curve = MRSFC = 2. This means that Carolyn can give up 2 units of cloth for 1 unit of food.
Now, slope of budget constraint = Pc/PF = $6/$3 = 2.
As MRSFC=Slope of the budget constraint, Carolyn's utility is maximum. The indifference curve intersects the budget line at this point (equilibrium).
At this equilibrium point, she is indifferent between 2 units of food and 1 unit of cloth. Also, her preference matches with the market exchange rate.
Assume Carolyn is given a bundle on her budget constraint where her MRSFC = 2. Also...
Please explain. Q7: The following figure shows the indifference curves and budget constraint of a consumer. De- termine the commodity bundle that will maximize the consumer's satisfaction given his budget. Why is the bundle the optimal choice? Good 1 Budget Constraint 0 1 2 3 4 5 6 7 8 9 10 Good 2
1. (24 total points) Suppose a consumer’s utility function is given by U(X,Y) = X1/2*Y1/2. Also, the consumer has $72 to spend, and the price of Good X, PX = $4. Let Good Y be a composite good whose price is PY = $1. So on the Y-axis, we are graphing the amount of money that the consumer has available to spend on all other goods for any given value of X. a) (2 points) How much X and Y...
The figure to the right shows Jill's budget constraint and her utility maximizing bundle (point R). What happens to her optimum if her income increases by 25%? 1.) Use the line drawing tool to show the new budget line. Label this line 'L 2.. 2.) Use the point drawing tool to locate a new consumer optimum if good Y is an inferior good. Label this point 'T'. 25- 24- 23- 22- 21- 20- 19- 18- 17- 16- 15- 14- 13-...
Erin has the following utility over cookies and leisure. U = min(31,c) (Utility) 5 € 4 3 2 1 0 0 0.33 0.67 + 5 1 2 3 4 Her indifference curves are plotted in the above graph. She can choose from the following five bundles for leisure and consumption (l,c): 1. Point 1: (3,3) 2. Point 2: (2,2) 3. Point 3: (1,1) 4. Point 4: (3,2) 5. Point 5: (3,1) a. What is her utility from each bundle? b....
1. Suppose that the price of oranges is $1 per unit and the price of pencils is $70 per unit. In addition, suppose that your income is $1900. If you spend all your money on oranges, how many oranges can you buy? 1900 oranges 2. The table below shows total utility for two products. Suppose that the price for product A is $5 and the price for product B is $5. Number of product A Total Utility for A Number...
QUESTION 11 Scenario 1: Tom's budget constraint is given by PxX +PyY = 40, and Px= $5, Py = $4. Suppose Tom's utility function is given by the equation U= 2XY, where is the level of utility measured in utils and X and Y refert good X and good Y, respectively. You are also told that the marginal utility of good X can be expressed as MUX = 2Y; and the marginal utility of good Y can be expressed as...
If the consumer's budget constraint is given by 10F + 5S = 100 where F is food and S is shelter, how much food can he buy if he purchases 4 units of shelter? A 10 B 8 C 20 D 9
Let (x1, x2) be some interior bundle on the budget constraint, and suppose p1 = 4 and p2 = 2. If the marginal rate of substitution at (x1, x2) is -3, then is (x1, x2) optimal? Explain why or why not, and justify your answer with economic intuition.
Each individual consumer takes the prices as given and chooses her consumption bundle, (r, 2) R, by maximizing the utility function U (r1, T)= In(xr2), subject to the budget constraint pi 1 + p2 2 900 (a) (3 points) Write out the Lagrangian function for the consumer's problem (b) (6 points) Write out the system of first-order conditions for the consumer's problem (e) (6 points) Solve the system of first-order conditions to find the optimal values of r and r2....
Let (x1, x2) be some interior bundle on the budget constraint, and suppose p1 = 4 and p2 = 2. If the marginal rate of substitution at (x1, x2) is -3, then is (x1, x2) optimal? Explain why or why not, and justify your answer with economic intuition. (Partial credit for a purely graphical argument.)