1. Suppose there are two consumers, A and B. The utility functions of each consumer are given by: UA(X,Y) = X*Y UB(X,Y) = X*Y3 Therefore: • For consumer A: MUX = Y; MUY = X • For consumer B: MUX = Y3; MUY = 3XY2 The initial endowments are: A: X = 10; Y = 6 B: X = 14; Y = 19 show all work a) Suppose the price PY = 1. Calculate the price of X, PX that will lead to a competitive equilibrium. b) How much of each good does each consumer demand in equilibrium? Consumer A’s Demand for X: Consumer A’s Demand for Y: Consumer B’s demand for X: Consumer B’s demand for Y: c)What is the marginal rate of substitution for consumer A at the competitive equilibrium?
1. Suppose there are two consumers, A and B. The utility functions of each consumer are given by: UA(X,Y) = X*Y UB(X,Y) = X*Y3 Therefore: • For consumer A: MUX = Y; MUY = X • For consumer B: MUX = Y3; MUY = 3XY2 The initial endowments are: A: X = 10; Y = 6 B: X = 14; Y = 19 show all work a) Suppose the price PY = 1. Calculate the price of X, PX that will lead to a competitive equilibrium. b) How much of each good does each consumer demand in equilibrium? Consumer A’s Demand for X: Consumer A’s Demand for Y: Consumer B’s demand for X: Consumer B’s demand for Y: c)What is the marginal rate of substitution for consumer A at the competitive equilibrium?
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.12P
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1. Suppose there are two consumers, A and B. The utility functions of each consumer are given by: UA(X,Y) = X*Y UB(X,Y) = X*Y3
Therefore:
• For consumer A: MUX = Y; MUY = X
• For consumer B: MUX = Y3; MUY = 3XY2
The initial endowments are: A: X = 10; Y = 6 B: X = 14; Y = 19
show all work
a) Suppose the price PY = 1. Calculate the price of X, PX that will lead to a competitive equilibrium.
b) How much of each good does each consumer demand in equilibrium?
Consumer A’s Demand for X:
Consumer A’s Demand for Y:
Consumer B’s demand for X:
Consumer B’s demand for Y:
c)What is the marginal rate of substitution for consumer A at the competitive equilibrium?
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