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Unformatted text preview: 2010-03-101Econ201Consumer BehaviorMore CasesUtility Maximization: A Special CaseCan this person increase utility?Videos10Corner SolutionMRS > P /PPy=$2U1UIce Cream20MRS > Px/PyPx=$1Income=$201.51U2DEquilibrium is at point DWhy are these preferences impossible?Videos10Py=$2UARuled out by transitivity (and diminishing marginal rate of substitution): Indifference curves cannot intersectIce Cream20U2Px=$1Income=$201.51DCorner Solutions Are a Special Case•A corner solution represents an optimum bundle when a consumer desires to consume less of a good than is feasiblethan is feasible.•At a corner solution, the indifference curve is not tangent to the budget constraint.Another ExampleCan this person increase utility?VideosU2Corner SolutionMRS < Px/Py20.7Py=$210AEquilibrium is at point AIce CreamPx=$1Income=$2020Is this the same example?Can this person increase utility?VideosPy=$21U10AIce Cream20Px=$1Income=$201....
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This note was uploaded on 09/18/2010 for the course ECON 201 taught by Professor Beomsookim during the Fall '10 term at Korea University.
- Fall '10