Econ 5

Econ 5 - 1 Utility Function Deriving MRS 1 14.01 Principles...

This preview shows pages 1–4. Sign up to view the full content.

Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD Month YYYY]. 1 1 Utility Function, Deriving MRS 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen September 14, 2007 Lecture 5 Deriving MRS from Utility Function, Budget Constraints, and Interior Solution of Optimization Outline 1. Chap 3: Utility Function, Deriving MRS 2. Chap 3: Budget Constraint 3. Chap 3: Optimization: Interior Solution 1 Utility Function, Deriving MRS Examples of utility: Example (Perfect substitutes) . U ( x, y ) = ax + by. Example (Perfect complements) . U ( x, y ) = min { ax, by } . Example (Cobb-Douglas Function) . c U ( x, y ) = Ax b y . Example (One good is bad) . U ( x, y ) = ax + by. An important thing is to derive MRS. dy MRS = = Slope of Indifference Curve . dx | |

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

View Full Document
10 9 8 7 6 U(x,y)=ax+by=Const y 5 4 3 2 1 0 0 2 4 6 8 10 x Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD Month YYYY]. 2 1 Utility Function, Deriving MRS Figure 1: Utility Function of Perfect Substitutes y 10 9 8 7 6 5 4 3 U(x,y)=min{ax,by}=Const 2 1 0 0 2 4 6 8 10 x Figure 2: Utility Function of Perfect Complements
2 4 6 8 10 y U(x,y)=Ax a y b =Const 0 0 2 4 6 8 10 x 10 9 8 7 6 U(x,y)=−ax+by=Const y 5 4 3 2 1 0 0 2 4 6 8 10 x Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu),

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

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

{[ snackBarMessage ]}

What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern