A consumer has the indifference map shown below. The market prices of X and Y are $24
Question:
A consumer has the indifference map shown below. The market prices of X and Y are $24 and $8, respectively. The consumer has $120 to spend on goods X and Y.a. Construct the consumer?s budget line and find the utility-maximizing consumption bundle. Label this bundle ?E?. Bundle E is composed of________ units of X and ________ units of Y.b. For bundle E, the marginal rate of substitution is________ ?(greater than, less than, equal to) the slope of the budget line (in absolute value). The ratio MU/P for good X is________ ?(greater than, less than, equal to) the ratio MU/P for good Y.c. Bundle E________ ?(is, is not) a corner solution.Now suppose the consumer?s income and the price of Y remain the same, but the price of X decreases to $8.d. Construct the new budget line and find the new utility-maximizing consumption bundle. Label this bundle ?N?. Bundle N is composed of________ ?units of X and________ ?units of Y.e. For bundle N, the marginal rate of substitution is________ ?(greater than, less than, equal to) the slope of the budget line (in absolute value). The ratio MU/P for good X is________ ?(greater than, less than, equal to) the ratio MU/P for good Y.f. Bundle N________ ?(is, is not) a corner solution.
Step by Step Answer:
Managerial Economics Foundations of Business Analysis and Strategy
ISBN: 978-0078021909
12th edition
Authors: Christopher Thomas, S. Charles Maurice