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Consumer has preferences characterized by utility function u(x1, x2) =lnx1+x2.

a) What kind of preferences are these? Solve for expression for this consumer's MRS. Draw 3 different indifference curves for this consumer.

b) Assume M=15, P1=1, P2=3. Use tangency condition MRS= -(P1/P2) to solve for optimal amount of good 1.Given this, find out the optimal amount of good 2. Draw this optimal choice on graph of the budget set. Include an indifference curve through your optimal point.

c) Now increase income to M=21. Deduce new optimal choice and show it on graph as in b)

d) Describe any difference between points chosen in b) and c).

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M922840

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