6) The figure below shows a student's feasible frontier and her indifference curves for final exam marks and the hours of free time per day. The table also gives the marginal rate of substitution (MRS) and the marginal rate of transformation (MRT) for the points shown in the figure. Based on this information, identify whether each of the following statements is true or false. Final grade 100- 90- a. At A, one hour of free time is equivalent in value to 3 grade points. However, 1 extra hour of studying leads to 9 extra grade points. She should therefore study more. c. At D, the MRT of 4 means that if she gives up all of her free time, she can attain 60 extra grade points. d. At E, the MRS matches the student's MRT. Therefore, she should exchange one hour of free time with 7 extra grade points. 6 b. At B, one hour of free time is equivalent in value to 2 grade points. However, 1 extra hour of studying leads to 20 extra grade points. She should therefore study more. 0 Feasible frontier Hours of free time per day 19 24 IC, IC Free time Grade MRT MRS B 13 84 2 20 D 15 78 4 15 E 19 57 7 7 A 22 33 9 3

6) The figure below shows a student's feasible frontier and her indifference curves for final exam marks and the hours of free time per day. The table also gives the marginal rate of substitution (MRS) and the marginal rate of transformation (MRT) for the points shown in the figure. Based on this information, identify whether each of the following statements is true or false. Final grade 100- 90- a. At A, one hour of free time is equivalent in value to 3 grade points. However, 1 extra hour of studying leads to 9 extra grade points. She should therefore study more. c. At D, the MRT of 4 means that if she gives up all of her free time, she can attain 60 extra grade points. d. At E, the MRS matches the student's MRT. Therefore, she should exchange one hour of free time with 7 extra grade points. 6 b. At B, one hour of free time is equivalent in value to 2 grade points. However, 1 extra hour of studying leads to 20 extra grade points. She should therefore study more. 0 Feasible frontier Hours of free time per day 19 24 IC, IC Free time Grade MRT MRS B 13 84 2 20 D 15 78 4 15 E 19 57 7 7 A 22 33 9 3

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the following utility function is given U(x,Y) = x+Y Which of the following is соrect? We have non-convex preferences since Law of diminishing Marginal Rate of Substitution holds and indifference curves are bowed inward towards the origin We have convex preferences since Law of diminishing Marginal Utility holds and indifference curves are bowed outward from the origin We have convex preferences since Law of diminishing Margina Rate of Substitution holds and indifference curves are bowed inward towards the origin We have convex preferences since Law of diminishing Marginal Rate of Substitution fails to hold and indifference curves are bowedinward towards the origin
3. The utility that Elena receives by consuming food F and clothing C is given by U(F, C) = FC + F. Food costs £1 per unit, and clothing costs £2 per unit. Elena's income is £22. MUF = C+1 and MUc = F. (i) Define the term Marginal Rate of Substitution (MRS) (ii) Find the utility maximizing values of C and F for the numerical values given above (Hint: You can assume interior solution). (iii) Now suppose that price of C and Elena's income remain unchanged at £2 per unit and £22, respectively, while the price of F varies. Find the equation of the demand for F as a function of the unit price of F (PF).
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Explain why the lifetime budget constraint must be satisfied as a strict equality
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