Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Business Economics Expert

Indifference Curve, Budget Line & Optimal Utility

A household's utility over two consumption goods x and y is U= U(x,y) = xy.

1. Describe the household's indifference curve for U = 1 for values of x and y less than 3 (ie. the curve containing all combinations of x and y such that U(x,y)=1.

Now assume that the household's wealth is w=4 and that the prices of the goods are px = 2 and py = 2.

2. How many units of x can the household consume at most if it does not consume any y?

3. Describe the household's budget line and its relationship to the indifference curve.

4. What is the household's optimal consumption bundle?

5. What is the Marginal Rate of Substitution (MRS) between the two goods?

Note the budget constraint can be written as 2x + 2y = 4

6. Solve this budget constraint for y and substitute it into the utility function to obtain an expression for utility that depends on x only.

7. Maximize this utility to obtain the optimal amount of x. (Take the derivative of this expression with respect to x, set the derivative equal to zero, solve for x)

8, Find the optimal amount of y by using the result for x.

9. How does this optimal consumption bundle compare to the one found graphically.

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M927743

Have any Question? 


Related Questions in Business Economics

Write a program to scan 2 integer numbers from user then

Write a program to scan 2 integer numbers from user, then check for below conditions: a). If both the numbers are equal, print a message "Both numbers are equal". b). If first number is greater than second number, print ...

The dakota corporation had a 2015 taxable income of

The Dakota Corporation had a 2015 taxable income of $35,500,000 from operations after all operating costs but before (1) interest charges of $8,800,000; (2) dividends received of $780,000; (3) dividends paid of $5,400,00 ...

1 compare australia and china growth rates over the period

1) Compare Australia and China growth rates over the period of last ten years (2005 - 2015) in about 300 words 2) Critically analyze the reasons for the variation of growth rates in each country over that time period abo ...

Suppose that your company wants to sell bonds in order to

Suppose that your company wants to sell bonds in order to finance an expansion, and that investors would like to earn an effective annual rate of 10 percent on these bonds. On January 1, 2017 what is the highest price th ...

In the coming year game monster inc will be introducing its

In the coming year, Game Monster, Inc., will be introducing its first product, a wrist brace that protects serious video gamers from repetitive-motion injuries. The brace will be sold for $14 to retailers throughout the ...

1 assume that the eurozone risk free interest rate n bonds

1) Assume that the eurozone risk free interest rate n bonds with one year to maturity is 4.78 percent and the U.S. risk free rate on one year bonds is 3.15 percent. The currenct exchangerate is $0.90 per euro. assume the ...

An investor can design a risky portfolio based on two

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 15% and a standard deviation of return of 29%. Stock B has an expected return of 10% and a standard deviation of re ...

The bf goodrich co decided to close one of its plants it

The B.F. Goodrich Co. decided to close one of its plants. It offered to pay a 10% bonus to any employee who continued to work in the plant until it closed. Maude Miami was employed at the existing plant; she knew of the ...

Discuss the impact of major accountingfinancial scandals on

Discuss the impact of major accounting/financial scandals on investors’ asset preferences. In your opinion how do the scandals affect foreign markets? Discuss two macro variables that affect changes in interest rates/or ...

General electric develops a new type of high-tech mri

General Electric develops a new type of high-tech MRI machine. GE has a patent on the machine and therefore is essentially a monopolist. After hiring consultants to study the market,GE’s best estimate of the potential de ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate