A consumer’s utility function is given by the expression: ( ) 2 0.5 0.5 U = 0.6X + 0.4Y . • Determine the marginal utility functions for each commodity. Does marginal utility decrease when consumption increases? • Assuming that the price of good X is Rs 15 and the price of Y is Rs 6, write the equation of the budget line and plot it when income is Rs 450. What is its slope? What does it indicate? • Calculate the marginal rate of substitution of Y for X and interpret its economic meaning. Write the equation showing consumer’s equilibrium condition.
A consumer’s utility function is given by the expression:
( )
2 0.5 0.5 U = 0.6X + 0.4Y .
• Determine the
Does marginal utility decrease when consumption increases?
• Assuming that the price of good X is Rs 15 and the price of
Y is Rs 6, write the equation of the budget line and plot it
when income is Rs 450. What is its slope? What does it
indicate?
• Calculate the marginal rate of substitution of Y for X and
interpret its economic meaning. Write the equation showing
consumer’s equilibrium condition.
• Obtain the equilibrium values of X and Y.
• Find the expressions for change in MUX due to increase in Y
and change in MUY due to increase in X
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