Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please can you interpretate and calculate MRS please provide more explanation 2. Suppose Slava's utility function is U(1, 12) = (x1) (x2) and his budget

please can you interpretate and calculate MRS please provide more explanation

image text in transcribed
2. Suppose Slava's utility function is U(1, 12) = (x1) (x2) and his budget constraint is pill + p242 = I. (a) Find the formula for an indifference curve that yields some utility c. Graph it. (b) Calculate the MRS at any bundle ($1, 12) (using marginal utilities). (c) Now, calculate MRS at any bundle (X1, 12) by directly evaluating the slope of an indifference curve and show that your answer is the same as in part (b). (Hint: Set up an arbitrary indifference curve: u (X1, X2) = c. Differentiate both sides by 2. Then think about what "c" means and substitute appropriately). (d) Briefly interpret how the MRS changes along an indifference curve. (e) Suppose Slava finds himself consuming a bundle where the indiffer- ence curve is steeper than the budget line. Explain why this is not his optimal bundle

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_2

Step: 3

blur-text-image_3

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

Rediscovering Sustainability Economics Of The Finite Earth

Authors: ARG Heesterman

1st Edition

1317069846, 9781317069843

More Books

Students also viewed these Economics questions