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Suppose Bob has a utility function u(x,y) = LN(x) + (y/4) Suppose the price of x is px = $2, the price of y is py = $1, and Bob's income is m = $8. a. Show that the marginal rate of substitution as a function of x & y is 4/x. b. Set the MRS equal to the price ratio to find the income-consumption curve. c. How many units of x and y will Bob buy? d. Suppose the price of y increases to 2. How many units of x and y will Bob buy? e. Suppose the price of y increases to 3. How many units of x and y will Bob buy? f. Would your answers to parts a-e change if his utility function were u(x,y)= 4 Ln(x) +y? Why or why not?

 

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