Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Assume that a consumer has the utility lnction U(x1 , x2) = x1x2 , where x1 and 16; represent the amounts of two goods, 1

image text in transcribed
image text in transcribed
Assume that a consumer has the utility lnction U(x1 , x2) = x1x2 , where x1 and 16; represent the amounts of two goods, 1 and 2. The consumer faces the budget constraint 5 x1 + 4 x2 5 50. In addition, the consumer faces a rationing constraint: the ration point \"prices\" of 3:1 and x2 are 3 and 6, respectively, and the consumer is issued a total of 40 ration points. This rationing constraint can be written as 3 x1 + 6 x2 5 40. a) Find the values of x1 and x2 the consumer will choose. b) What is the marginal utility of income at the equilibrium ? c) What is the marginal value of a ration point at the equilibrium ? d) Illustrate your solution graphically, with quantities on the axes

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essentials Of Economics

Authors: N. Gregory Mankiw

5th Edition

0324590024, 9780324590029

More Books

Students also viewed these Economics questions