Problem Set 2 - Solution

# Problem Set 2 - Solution - Econ 313-1 TA: Tian Liang...

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Econ 313-1 TA: Tian Liang Solutions to Problem Set 2 1. (a) 2 packages (16 oz) of margarine ( x ) are just as good as 1 package (16 oz) of butter ( y ), so margarine and butter are perfect substitutes with an MRS of 1/2. A utility u ( x;y ) = x + 2 y: The indi±erence curve equation is x + 2 y = k: max x;y x + 2 y s.t. x > 0 ; y > 0 x + 1 : 5 y 6 6 MRS = 1 = 2 , p x =p y = 2 = 3 , so MRS < p x =p y , and thus x = 0 and y = m=p y = 4 . 1

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2. (a) Let x and y denote the quantity of peanut butter and quantity of jelly, respectively, u ( x;y ) = min f 2 x; 3 y g : max x;y min f 2 x; 3 y g s.t. x > 0 ; y > 0 6 x + 3 y 6 16 2
The solution to the problem: 2 x = 3 y 6 x + 3 y = 16 = ) x = 2 y = 4 = 3 3. (a) Let

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## This note was uploaded on 06/27/2008 for the course ECON 3130 taught by Professor Masson during the Spring '06 term at Cornell University (Engineering School).

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Problem Set 2 - Solution - Econ 313-1 TA: Tian Liang...

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