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2. Jacob's preferences for goods X and Y can be described by U(X,Y) = X+2Y+XY. Jacob has an income of $20 and faces prices Px = PY = $5. a. Derive Jacob's utility maximizing bundle given his budget constraint. Use the Lagrange method or simply the optimality condition. b. Now suppose Jacob's income falls to $5. Redo part a. c. Calculate Jacob's MRS of X for Y at this new utility maximizing bundle. How does it compare to the market trade-off of X for Y? d. On one graph, depict Jacob's utility maximizing bundles using indifference curves and budget lines, both before and after his income decreases.

2. Jacob's preferences for goods X and Y can be described by U(X,Y) = X+2Y+XY. Jacob has an income of $20 and faces prices Px = PY = $5. a. Derive Jacob's utility maximizing bundle given his budget constraint. Use the Lagrange method or simply the optimality condition. b. Now suppose Jacob's income falls to $5. Redo part a. c. Calculate Jacob's MRS of X for Y at this new utility maximizing bundle. How does it compare to the market trade-off of X for Y? d. On one graph, depict Jacob's utility maximizing bundles using indifference curves and budget lines, both before and after his income decreases.

Microeconomics A Contemporary Intro
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter6: Consumer Choice And Demand
Section: Chapter Questions
Problem 6QFR
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2. Jacob's preferences for goods X and Y can be described by U(X,Y) = X+2Y+XY. Jacob has an income of $20 and faces prices Px = PY = $5. a. Derive Jacob's utility maximizing bundle given his budget constraint. Use the Lagrange method or simply the optimality condition. b. Now suppose Jacob's income falls to $5. Redo part a. c. Calculate Jacob's MRS of X for Y at this new utility maximizing bundle. How does it compare to the market trade-off of X for Y? d. On one graph, depict Jacob's utility maximizing bundles using indifference curves and budget lines, both before and after his income decreases.
Transcribed Image Text:2. Jacob's preferences for goods X and Y can be described by U(X,Y) = X+2Y+XY. Jacob has an income of $20 and faces prices Px = PY = $5. a. Derive Jacob's utility maximizing bundle given his budget constraint. Use the Lagrange method or simply the optimality condition. b. Now suppose Jacob's income falls to $5. Redo part a. c. Calculate Jacob's MRS of X for Y at this new utility maximizing bundle. How does it compare to the market trade-off of X for Y? d. On one graph, depict Jacob's utility maximizing bundles using indifference curves and budget lines, both before and after his income decreases.
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