If a and ß are just parameters and if the direct utility function is u (x1, X2) = a · In(x1) + ß · In(x2) %3D then what is the marginal utility of x1 and what is the marginal utility of x2 ? Demonstrate whether these marginal utilities are increasing, diminishing, or constant. Assume that the following indifference curve belongs to the direct utility function specified above. u - 1.565 G (5, 4) 4 Н (10, 0.25) 0.25 5 10 1 What is the value for M RS12 evaluated at bundle G(5,4) if a = 0.8 and B = 0.2 ? What is the value for M RS12 evaluated at bundle H(10, 0.25) ? Discuss what these calculated values for M RS12 imply regarding whether preferences are convex or not (regardless of what the figure depicts above). Show your work!
If a and ß are just parameters and if the direct utility function is u (x1, X2) = a · In(x1) + ß · In(x2) %3D then what is the marginal utility of x1 and what is the marginal utility of x2 ? Demonstrate whether these marginal utilities are increasing, diminishing, or constant. Assume that the following indifference curve belongs to the direct utility function specified above. u - 1.565 G (5, 4) 4 Н (10, 0.25) 0.25 5 10 1 What is the value for M RS12 evaluated at bundle G(5,4) if a = 0.8 and B = 0.2 ? What is the value for M RS12 evaluated at bundle H(10, 0.25) ? Discuss what these calculated values for M RS12 imply regarding whether preferences are convex or not (regardless of what the figure depicts above). Show your work!
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.8P
Related questions
Question
100%
Transcribed Image Text:If a and ß are just parameters and if the direct utility function is
u (x1, X2) = a · In(x1) + ß · In(x2)
%3D
then what is the marginal utility of x1 and what is the marginal utility of x2 ?
Demonstrate whether these marginal utilities are increasing, diminishing, or constant.
Assume that the following indifference curve belongs to the direct utility function
specified above.
u - 1.565
G (5, 4)
4
Н (10, 0.25)
0.25
5
10
1
What is the value for M RS12 evaluated at bundle G(5,4) if a = 0.8 and
B = 0.2 ? What is the value for M RS12 evaluated at bundle H(10, 0.25) ? Discuss
what these calculated values for M RS12 imply regarding whether preferences are
convex or not (regardless of what the figure depicts above). Show your work!
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Microeconomics: Principles & Policy
Economics
ISBN:
9781337794992
Author:
William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:
Cengage Learning
