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) = 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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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
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.
THANKS.
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