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Unformatted text preview: MRS = (MU X /MU Y ) = Y/X 4. What does your budget constraint look like? 20 = 5x + 2y 5. What is your optimal choice of glasses of apple juice ( Y ) and sandwiches ( X ) that you would consume? ( Hint: you will set MRS = P x /P y so that the slope of the indifference curve is equal to the slope of the budget constraint; this will give you the optimal ratio of the two goods. Next, you substitute this into your budget constraint to find the optimal quantity of each, given the prices and income you have.) MRS = (P x /P y ) (Y/X) = (5/2) 2Y = 5X Y = 2.5X Substitute this into the budget constraint: 20 = 5x + 2(2.5x) 20 = 5x + 5x 20 = 10x X = 2; y = 2.5X = 2.5(2) = 5...
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This note was uploaded on 02/20/2010 for the course ECON 3910 taught by Professor Laury during the Fall '10 term at Georgia State University, Atlanta.
- Fall '10