PAM200_Section2_Solutions - y = U 2. x 5 10 15 20 25 5 10...

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PAM200 – Section 2 Problem 3.9 Vodka Vermouth 1 2 10 20 U 1 U 2 Problem 3.10 Here we assume that: U 2 > U 1 . a) Peanut Butter Jelly 1 2 2 4 U 2 U 1 b) Peanut Butter Jelly U 1 U 2
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c) Peanut Butter Jelly U 2 U 1 d) Peanut Butter Jelly 1 2 2 4 U 2 U 1 Problem 3.19 a) Yes since both marginal utilities are always positive. b) The marginal utility of x decreases as the consumer buys more x . c) , 1 1 1 x y x MRS x = = d) As the consumer substitutes x for y , the y x MRS , will increase. e) Since it is possible to have U > 0 if either x = 0 (and y > 0) or y = 0 (and x > 0), the indifference curves intersect both axes. To draw an indifference curve, we can fix U, and then write y in function of x
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Unformatted text preview: y = U 2. x 5 10 15 20 25 5 10 15 20 25 30 35 X Y U 2 U 1 f) The slope of a typical indifference curve at some basket ) , ( y x is the , 1 x y MRS x = . At 4 = x , , 1 0.5 4 x y MRS = = . Note that this holds regardless of the value of y . Therefore, the slope of any indifference curve at 4 = x will be 0.5-. Problem 3.21 By definition, the expression for MRS x,y is ( 29 x y y x y x MU MU MRS y x y x -1 =-= =---1 1 1 , Moreover, we know that MRS x,y = 4 when x = 4 and y = 8, therefore we can solve for : 3 2 2 2 1 2 4 8 1 4 = =--=-=...
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PAM200_Section2_Solutions - y = U 2. x 5 10 15 20 25 5 10...

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