ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- (a) Suppose we have preferences U(X, Y) = min [X, 3Y]. Graph/sketch the indifference curve through the bundle (X = 30, Y = 30). What is the utility of (30, 30) and explain why the indifference curves look the way they do. (b) What does the Marginal Rate of Substitution tell us about preferences? < (c) Why is the Marginal Rate of Substitution not applicable in this example? < (d) What do we mean by a composite good? What does this composite good look like with these preferences? Show and explain.< (e) State the consumer's maximization problem and express this in words.< (f) Now let Px = 10, Px= 20 and income M = 2000. Find optimal X*, Y*, and the resulting Utility (U*). Show your work. < (g) Now let Py = 15. How does optimal consumption (X*.Y*) and utility (U*) change relative to (e)? Explain in simple terms and show in a diagram.<arrow_forwardJoko is a university student, working part-time at copying service center for Rp. 8/hour with zero non-labor income. (a) Graph Joko’s budget constraint and label the utility-maximing outcome if Joko opts to work 40 hours per week. (b) Suppose Joko’s parents decide to send him Rp.100/week. Graph Joko’s new budget constraint. (c) How many hours will Joko now have to work to maintain the same weekly income as in (a)?arrow_forwardPROBLEM (1) Suppose a consumer has just enough money to afford the bundle of 3 apples and 2 oranges, and similarly she also has just enough money to afford the bundle of 2 apples and 4 oranges. (a) Denoting the number of apples with x and oranges with y, plot the two given bundles on a graph, and calculate the relative price of apples; px/ py. (b) If she buys only apples with her budget, how many can she buy? If she buys only oranges, how many can she buy? Write down the budget equation for the consumer. (Notice that knowing two points on the budget line, you can write down the budget equation, even though you weren't given the prices nor the income explicitly!) (c) Suppose MUx = 20 and MUY = 30 at some point on the budget line. Is she maximizing utility by choosing this bundle? If not, should she buy fewer apples (and more oranges), or more apples (and fewer oranges), to increase her utility? (d) Forget about (c); instead, you learn that her utility function is u(x,y) = Axy³. What is…arrow_forward
- solve d,e,f please Thank youarrow_forwardIt is proven mathematically that indifference curves are convex due to:(a) rising marginal rates of substitution.(b) the inverse association between the quantity demanded and the price.(c) costs decreasing in value.(d) the marginal rates of substitution being negative.arrow_forwardHigher Indifference curve means: (a) Consumer has got increment in income (b) Higher utility (c) Prices of product have reducedarrow_forward
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