Qla. Consider a utility function: U (F,C) = FC so MU_F = Cand MU_C = F. Suppose as Case 1, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and $10, respectively, then: What is the value of MRS at the optimal point and what does this value mean?
Qla. Consider a utility function: U (F,C) = FC so MU_F = Cand MU_C = F. Suppose as Case 1, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and $10, respectively, then: What is the value of MRS at the optimal point and what does this value mean?
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 5SQ
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Transcribed Image Text:Q1a. Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F.
Suppose as Case 1, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and
$10, respectively, then:
What is the value of MRS at the optimal point and what does this value mean?
Q1b. Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F.
Suppose as Case 1, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and
$10, respectively, then:
What is the optimal consumption bundle i.e (F*,C*)?
Q1c. Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F.
Suppose as Case 1, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and
$10, respectively, then:
Plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space.
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