 Week 2 Microeconomics Practice Questions Chapter 3 Review Question 3.11! Describe the equal marginal principle. Explain why this principle may not hold if increasing marginal utility is associated with the consumption of some goods.! Equal marginal principle:! •Take a utility function U(X,Y) with smooth convex indifference curves. ! •At the optimal choice MUx/Px = MUy/Py! ! If MUx and MUy are increasing:! •Consuming more X increases MUx/Px. If this is larger than MUy/Py, then consumers should keep spending more on X and less of Y —> corner solution (=equal marginal principle doesn’t need to hold at a corner solution)! Exercise 3.14 a,b,d! Connie has a monthly income of $200 that she allocates between two goods: meat and potatoes.! a)Suppose meat costs $4 per pound and potatoes $2 per pound. Draw her budget constraint.! Given: ! Her budget constraint:! If she buys no meat (M=0); ! 4(0)+2P=200! 2P=200! P=100! If she buys no potatoes (P=0)! 4M+2(0)=200! 4M=200! M=50! Julio receives utility from consuming food (F) and clothing (C) as given by the utilityfunction U(F,C) = FC. In addition, the price of food is $2 per unit, the price of clothing is$10 per unit, and Julio’s weekly income is $50.a.What is Julio’s marginal rate of substitution of food for clothing when utility ismaximized? Explain.b.Suppose instead that Julio is consuming a budget with more food and lessclothing that his utility maximizing bundle. Would his marginal rate of substationof food for clothing be greater than or less than your answer in part a? Explain.10.Each week, Bill, Mary and Jane select the quantity of two goods, x1and x2, that they willconsumer in order to maximize their respective utilities. They each spend their entireweekly income on these two goods.a.Suppose you are given the following information about the choice that Bill makesover a three-week period: The second half of the question Transcribed Image Text:Julio receives utility from consuming food (F) and clothing (C) as given by the utility function U(F,C) FC. In addition, the price of food is $5 per unit, the price of clothing is $6 per unit, and Julio's weekly income is $50 What is Julio's marginal rate of substitution of food for clothing when utility is maximized? Explain Julio's marginal rate of substitution equals O A. 1.20, which is Julio's level of satisfaction. O B. 1.20, which is the price of clothing divided by the price of food O C. 0.83, which is the price of clothing divided by the price of food. O D. 1.20, which is (minus) the slope of the budget line 0.83, which is the price of food divided by the price of clothing. Suppose instead that Julio is consuming a bundle with more food and less clothing than his utility maximizing bundle. Would this marginal rate of substitution of food for clothing be greater than or less than your answer above? Explain If Julio is instead consuming a bundle with more food and less clothing than his utility maximizing bundle, then his marginal rate of substitution will be 0.83 his satisfaction maximizing bundle. because he will be consuming a bundle on the indifference curve that is Q: Julio receives utility from consuming food (F) and clothing (C) as given by the utility function… A: In a market, utility Maximizing level with two products is where ratio of marginal utility of two… Q: Julio receives utility from consuming food (F) and clothing (C) as given by the utility function… A: Using a utility maximisation strategy, people and businesses aim to get the most out of their… Q: Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these… A: Marginal rate of substitution is the ration of marginal utilities of both product. Q: Mary has two dinner options available: eating a home cooked meal for $150 per meal, or at a… A: The budget line and the optimal consumption point are found out as follows:… Q: Mary has two dinner options available: eating a home cooked meal for $150 per meal, or at a… A: The price of home-cooked meal = Px= $150 per meal The price of restaurant cooked meal =Py = $260 per… Q: Mary has two dinner options available: eating a home cooked meal for $150 per meal, or at a… A: The indifference curves show the combination of different commodities which brings the similar… Q: Mary has two dinner options available: eating a home cooked meal for $150 per meal, or at a… A: Click to see the answer Q: Charles lives in New York City and loves to eat desserts. He spends his entire weekly allowance on… A: The utility is maximum at the marginal utility per dollar is equal and in other words, the MRS is… Q: FC. Iñ åðditión, the price o Julio receives utility from consuming food (F) and clothing (C) as… A: Given Julio's utility function UF,C=FC ... (1) Price of food PF=2 and Price of clothing… Q: Jason has the following utility function: U = F2C where F is food and C is clothing. Clothing is… A: The marginal rate of substitution (MRS) is that the quantity of smart|an honest|a decent} that a… Q: Mrs. Griffiths earns $5000 a week and spend her entire income on dresses and handbags. Since these… A: The budget constraint shows the combinations of two goods that an individual is able to purchase… Q: Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these… A: Mrs. Griffith's income = $5000 She buys two commodities - dress (D) and handbag(H) Q: Calculate the marginal rate of substitution if the consumer is will to leave good y from 100 to 60… A: Utility refers to the satisfaction. The aim of the consumer is to maximize their utility. The… Q: Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these… A: An indifference curve shows various combinations of two goods that five same level of utility to a… Q: Compute marginal utilities and marginal rate of substitution for each of the utility functions given… A: The function which helps in measuring the satisfaction or welfare of a consumer as being consumption… Q: Suppose a consumer's labor supply is negatively sloped, meaning as wage increases, the consumer… A: An individual trades off between labor and leisure, with a given amount of work hours. The labor… Q: Compute marginal utilities and marginal rate of substitution for each of the utility functions given… A: Click to see the answer Q: Define the Marginal Rate of Substitution between two goods (X and Y). 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Julio receives utility from consuming food F and clothing C as given by the utility function
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