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

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

View Full Document Right Arrow Icon
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 | |
Background image of page 1

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

View Full DocumentRight Arrow Icon
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
Background image of page 2
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), Massachusetts
Background image of page 3

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

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

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

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online