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Assignment_2_for_2010

# Assignment_2_for_2010 - VICTORIA UNIVERSITY OF WELLINGTON...

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VICTORIA UNIVERSITY OF WELLINGTON SCHOOL OF ECONOMICS AND FINANCE ECON201 2010 ASSIGNMENT 2 Consumer Choice This assignment is not assessed, but you must prepare your answers in writing and bring them to tutorial for discussion. You may be asked at random to answer any of these questions for the class. 1. Suppose a consumer’s utility function is y x 4 ) y , x ( U = . a. Partially differentiate the utility function to find expressions for the marginal utility of x and y . In other words, find x U and y U . b. What is the Marginal Rate of Substitution when x = 2 and y = 16 ? Remember that this is found as y x xy MU MU MRS - = . c. The consumer has a budget of \$96 to spend. The price of x is \$12 and the price of y is \$6. Write the equation for the budget constraint. d. What is the slope of the budget line, dx dy ? (To find this, write the budget equation with y on the left hand side, and look for the x coefficient on the right hand side.) e. Now set up the Lagrangian function, remembering that it has the form ) y P x P I ( ) y , x ( U ) , y ,

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Assignment_2_for_2010 - VICTORIA UNIVERSITY OF WELLINGTON...

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