SolRevPrelim1Sp03Spr06

SolRevPrelim1Sp03Spr06 - Solution to review prelim 1(based...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Solution to review prelim 1 (based on the 2003 exam) Question 1. A. The function is a monotone transformation of the perfect substitutes utility function. Hence, indi f erence curves are as in f gure 1. B. The MRS = 1 . One can either f nd this directly, is MU 1 MU 2 = 9( x + y ) 9( x + y ) = 1 , or note that the MRS should be the same as that of the utility u = x + y , which is clearly MRS = 1 . Now to f nd the optimal choice note that MRS = 1 < 3 = p x p y . Therefore, the consumer would want to substitute food x for good y. The optimal choice is a corner solution x = 0 , y = m p y . Question 2 a. Under option (i) the budget is C + 10 G = 300 . G = 30 − . 1 C 300 250 200 150 100 50 40 30 20 10 C G C G Under option (ii) the budget "line" is C + 5 G = 200 for any G > , and C = 300 for G = 0 . The budget set includes all the points C + 5 G ≤ 200 as well as points with G = 0 , and 200 ≤ C ≤ 300 ....
View Full Document

{[ snackBarMessage ]}

Page1 / 6

SolRevPrelim1Sp03Spr06 - Solution to review prelim 1(based...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online