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Unformatted text preview: The marginal rate of substitution is equal to the ratio of the marginal utilities of the goods. Thus: c + 30r = 300 MUc/MUr = (.9c-.1 r .1 )/(.1c .9 r-.9 ) = Pc/Pr = 1/30 Solving these equations simultaneously for c and r yields c = 270 and r = 1. b. Without the 4 ticket constraint, Natasha would prefer to buy just 1 ticket. If required to buy 4 tickets, Natasha would maximize utility by either buying 4 tickets and consuming 180 colas, or by buying zero tickets and consuming 300 colas. The utility function may be used to determine which is preferred. In this case, Natasha will buy 4 tickets and 180 colas. c. Natasha prefers (a). Constraining choice never leaves one better off. At best it has no effect. Otherwise, the addition of a constraint leaves one worse off....
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This note was uploaded on 04/29/2008 for the course ECON 302 taught by Professor Toossi during the Spring '08 term at University of Illinois at Urbana–Champaign.
- Spring '08