This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: UCLA Economics 11  Fall 2010 Professor Mazzocco Problem Set 2 Due by October 14 before 9:00am in the box located outside room 2221E, Bunche Hall Question 1 Tom Hanks is the only person on an island, and he has an endowment of 120 units of x and 60 units of y. His utility function is U ( x,y ) = x 1 3 y 2 3 a) Find Toms marginal utility with respect to x and y. U x = 1 3 x 2 3 y 2 3 U y = 2 3 x 1 3 y 1 3 b) Find Toms marginal rate of substitution with respect to the 2 goods. MRS = U x U y = y 2 x c) Suppose a ship arrives and offers to trade x and y at the prices, p x = 2 and p y = 3 . What would Tom do in order to maximize his utility? (You do not need to solve this, just set up the maximization problem and the Lagrangian) max x,y x 1 3 y 2 3 s.t 120(2) + 60(3) = 2 x + 3 y Question 2 Megan is a big fan of peanuts and cookies. She has a budget for peanuts and cookies worth 40. The price of peanuts is $3 per can and the price of a box of cookies is $1. Her utility function is U ( p,c ) = ln( p ) + ln( c )....
View Full
Document
 Fall '08
 cunningham
 Economics

Click to edit the document details