Consider a consumer whose utility function is U(q1,q2) = q1*q2. This consumer has $100 and prices of two goods are p1 = $1 and p2 = $2. a) Draw indifference curves corresponding to utility levels 1 and 4. b) Now consider utility function U(q1,q2) = (q1*q2)2. Check that it generates same indifference curve map as initial utility function and JUSTIFY this result. (c) Calculate marginal utilities of both goods and COMMENT on their properties. d) Calculate marginal ratio of substitution (MRS) at points (1,1) ; (1/2,2) ; (2,1/2) ; (2,2) ; (3,1) and (1,3) and INTERPRET results.

Consider a consumer whose utility function is U(q1,q2) = q1q2. This consumer has $100 and prices of two goods are p1 = $1 and p2 = $2. a) Draw indifference curves corresponding to utility levels 1 and 4. b) Now consider utility function U(q1,q2) = (q1q2)2. Check that it generates same indifference curve map as initial utility function and JUSTIFY this result. (c) Calculate marginal utilities of both goods and COMMENT on their properties. d) Calculate marginal ratio of substitution (MRS) at points (1,1) ; (1/2,2) ; (2,1/2) ; (2,2) ; (3,1) and (1,3) and INTERPRET results.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 11SQ

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