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Problem Set 2

# Problem Set 2 - a Determine if there is a diminishing MRSH...

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ECON – 301 Problem Set 2 1) (2 pt) One type of Cobb-Douglas utility function is given by ( , )= - U x y xαy1 α , where =∝ - - MUx xα 1y1 α and =( -∝) - MUy 1 xαy α Suppose that you are told that a person with Cobb-Douglas preferences has an , MRSx y of 4 when x = 4 and y = 8. What is the numerical value of ? 2) (3 pt) A consumer has preferences between two goods, hamburgers (measured by H ) and milkshakes (measured by M ). His preferences over the two goods are represented by the utility function = + U H M . For this utility function = /( ) MUH 1 2H and = /( ) MUM 1 2M
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Unformatted text preview: . a) Determine if there is a diminishing , MRSH M for this utility function b) Draw a graph to illustrate the shape of a typical indifference curve. Label the curve U1 . Does the indifference curve intersect either axis? On the same graph, draw a second indifference curve U2 , with > U2 U1 . c) The consumer has an income of \$24 per week. The price of a hamburger is \$2 and the price of a milkshake is \$1. How many milkshakes and hamburgers will he buy each week if he maximizes utility? Illustrate your answer on a graph....
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