practice3-answers-fall07 - Note: The solution keys to the...

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intermediate steps and detailed explanations. They also do not include graphs ± please exam, you have to show your work and provide the intermediate steps and explanations to obtain full credit. Problem 1 a) MRS = @u=@x h @u=@x k = 1 if x h < 5 x k 0 if x h > 5 x k p x x h + p k x k y b) Utility maximization problem: max f x h ; x k g min f x h ; 5 x k g j p x x h + p k x k y x h ± 0 , x k ± 0 ± Optimality conditions: x h = 5 x k p x x h + p k x k = y x h ( p x ; p k ; y ) = 5 y p k + 5 p h x k ( p x ; p k ; y ) = y p k + 5 p h x k = y p k +5 p h > 0 for all y , p k , p h > 0 . c) IOC : x h = 5 x k Engel curve: x h ( y ) = 5 y p k +5 p h . 2
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Problem 2 a) MP a = 1 MP b = 1 2 p v b MRTS = MP a MP b = 2 p v b Isoquant: v a y p v b b) min f v b g w b v b j p v b ± y v b ± 0 ± v b ( w b y v
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practice3-answers-fall07 - Note: The solution keys to the...

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