2. A consumer has a utility fuinction given by a) Derive an expression for the two marginal utilities: MU1 (x1, 12) and MU2 (11, 22). Since Af RS MRS (1, 12). -V, use these marginal utilities to derive a simple expression for the ALU b) Optimal choice on the part of the consumer implies MRS = -. Suppose M 20, p1 = P2 = 1. Show the optimal choice in this case on a well-labelled graph of the budget set. Include an indifference curve consistent with these preferences. %3D c) Now keep income at 20, and pi = 1, but set p2 =2. Show the optimal choice in this case on a well-labelled graplh of the budget set. Include an indifference curve consistent with these preferences.
2. A consumer has a utility fuinction given by a) Derive an expression for the two marginal utilities: MU1 (x1, 12) and MU2 (11, 22). Since Af RS MRS (1, 12). -V, use these marginal utilities to derive a simple expression for the ALU b) Optimal choice on the part of the consumer implies MRS = -. Suppose M 20, p1 = P2 = 1. Show the optimal choice in this case on a well-labelled graph of the budget set. Include an indifference curve consistent with these preferences. %3D c) Now keep income at 20, and pi = 1, but set p2 =2. Show the optimal choice in this case on a well-labelled graplh of the budget set. Include an indifference curve consistent with these preferences.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 11PA
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Transcribed Image Text:2. A consumer has a utility fuinction given by
a) Derive an expression for the two marginal utilities: MU (x1, 22) and MU2 (21, r2).
Since AMRS = -YU use these marginal utilities to derive a simple expression for the
MRS (r1, 22).
b) Optimal choice on the part of the consumer implies MI RS = -. Suppose M 20, p1 =
p2 = 1. Show the optimal choice in this case on a well-labelled graph of the budget set.
Include an indifference curve consistent with these preferences.
c) Now keep income at 20, and pi = 1, but set p2 - 2. Show the optimal choice in this case
on a well-labelled graplh of the budget set. Inclnde an indifference curve consistent with
these preferences.
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