Practice Problem Set 1 part2 ans

# Practice Problem Set 1 part2 ans - marginal utility for y =...

This preview shows pages 1–2. Sign up to view the full content.

Spring 2010 Econ 320 Intermediate Microeconomic Analysis Yoichi Otsubo - 1 - 4. Consider the single-good utility function y y U 2 ) ( = . a. What are this consumer’s utility for y = 1, y = 4, y = 5? Sketch the utility function. ( ) 5 . 2 6 , 2 . 2 5 , 7 . 1 3 , 1 . 1 2 , z x xz use may You = = = = = Ans. ( ) ( ) ( ) 32 . 2 5 2 10 5 , 2 . 2 2 2 8 4 , 1 . 1 2 1 = = = = = = = = U U U (Graph will be shown in class) b. Does this consumer’s preferences satisfy transitivity assumption? Explain. Ans. Yes. Let A, B and C denotes the consumption basket y=1, y=4 and y=5 respectively. A B follows and B C follows since U(4)>U(1) and U(5)>U(4). To satisfy transitivity condition, this consumer’s preferences has to be A C follows . Since U(5)>U(1), A C follows . Hence her preferences are transitive. c. Does this consumer’s preferences satisfy “more the better” assumption? Explain. Ans. Yes. Since U(5)>U(4)>U(1), A B C follows follows . And basket C contains the most units, B the second, and A the least. d. Derive this consumer’s marginal utility using derivative. What are this consumer’s

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: marginal utility for y = 1, y = 4, y = 5? Sketch the marginal utility. ( ) x x x = 1 use may You Ans. ( ) y MU y 2 2 = (Graph will be shown in class) Spring 2010 Econ 320 Intermediate Microeconomic Analysis Yoichi Otsubo - 2 -5. Suppose David purchases only Pepsi and Pizza. Let x be the number of units of Pepsi, and y be the units of Pizza he purchases per month. Also suppose that his utility function is measured by xy U = , and his monthly income is I . Each unit of Pepsi costs P x and each unit of Pizza costs P y . Write a statement of the constrained optimization problem. Which variables are exogenous? Which variables are endogenous? Ans. I y P x P xy y x y x ≤ + : subject to max ) , ( Exogenous variables: I, P x , P y . Endogenous variables: x, y....
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern