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Hans receives utility from consuming F and C as given by the utility function U(F,  C) = FC. In addition, the price of F is $2 per unit, the price of C is $10 per unit, and  Hans' weekly income is $50.
a. What is Hans' marginal rate of substitution of C for F when utility is maximized?  (To be clear, we mean the value of F in terms of C). Explain.
b. Suppose instead that Hans is consuming a bundle with more F and less C than his  utility maximizing bundle. Would his marginal rate of substitution be greater  than or less than your answer in part a? Explain

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9904450

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