Homework 2 Answers

Homework 2 Answers - ECO 301: Intermediate Microeconomics...

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1 ECO 301: Intermediate Microeconomics Marco A Castaneda Homework 2: Answers 1. ANSWER The consumer has preferences represented by the utility function U = min{X,Y} a) The commodities are perfect complements. Therefore, the optimal consumption vector is determined by the conditions X = Y 10X + 10Y = 300 Therefore, we have the optimal consumption vector X* = 15 and Y* = 15, as illustrated in the graph. b) In this situation, the optimal consumption vector is determined by the conditions X = Y 20X + 10Y = 300 Therefore, we have the optimal consumption vector X* = 10 and Y* = 10, as illustrated in the graph. Y 20 15 10 5 X 25 30 5 10 15 20 25 30 Indifference curve Budget line
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2. ANSWER A consumer has preferences represented by the utility function U = 2X + 3Y For this utility function, we have MU X = 2 and MU Y = 3 and 3 2 MU MU MRS Y X XY = = Therefore, the indifference curves are linear, and the optimal consumption vector will involve the consumption of only one commodity. a) In this situation, we have Y Y X X P MU 5 3 5 2 P MU = < = Therefore, the consumer should spend all of their income in commodity Y,
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This homework help was uploaded on 04/13/2008 for the course ECON 301 taught by Professor Castaneda during the Spring '08 term at Tulane.

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Homework 2 Answers - ECO 301: Intermediate Microeconomics...

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