1. Suppose a utility function is given by u(x₁, x2) = 2√√x₁ + 4x₂. (a) Specify the equation of the indifference curve through (9,4), and write the equation in the form x₂ = .... (b) Now take the derivative with respect to x₁, and evaluate it at x₁ 9. This = is the slope of the indifference curve, and hence you can determine the MRS. (c) Suppose you know that (9, 4) is a person's optimal consumption, and that the price of good 1 is p₁ = 4. You know that at the optimum the MRS must be equal to the price ratio. Use this insight to determine the price of good 2 and the person's income.

1. Suppose a utility function is given by u(x₁, x2) = 2√√x₁ + 4x₂. (a) Specify the equation of the indifference curve through (9,4), and write the equation in the form x₂ = .... (b) Now take the derivative with respect to x₁, and evaluate it at x₁ 9. This = is the slope of the indifference curve, and hence you can determine the MRS. (c) Suppose you know that (9, 4) is a person's optimal consumption, and that the price of good 1 is p₁ = 4. You know that at the optimum the MRS must be equal to the price ratio. Use this insight to determine the price of good 2 and the person's income.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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