What does the law of equi marginal utility states? MU , MU x a) Px MU X b) Px MU, Pz > MU m P; MUY Pz MU z = MU m %3D %3D c) MUx×Px = MU, × P; = MU, x Pz MU x d) Pr %D MU, MU, < MU. Pz X Answer A В

Each day Amina, who is in third grade, eats lunch at school. She likes only Twinkies (t) and apple juice (a), and these provides her a utility of; utility = U(t,a) = vVta. If apple juice is graph on the vertical axis and Twinkies on horizontal axis. Amina has a dimisnishing MRS. %3D %3D True False

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In class discussions about uncertainty we assumed that the utility levels in each state of nature depends on c, which we might interpret as some aggregate con- sumption and we expressed utility as U(c). Now, let's extend this to a case where the utility level depends on consumption of two goods (this was the type of utility we used mainly in this course). Ben is a farmer who grows wheat and barley. However, his harvest is uncertain. If weather is good, he gets 200 lbs of wheat and 200 lbs of barley. If weather is bad, he gets only 100 lbs of wheat and 100 lbs of barley. His utility in each state of nature is U(w, b) = w¹/4b³/4, where w and b represent his consumption of wheat and barley, respectively. Prices of wheat and barley are $1 in both state of nature. The probability of good weather is T. Question 3 Part a Express Ben's expected utility function. (Hint: find Ben's optimal consumption in each state of nature first) Question 3 Part b Let's assume = 0.5. Knowing that bad weather…