Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F Suppose as Case 1, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and $10, respectively, then: a) What is the value of MRS at the optimal point and what does this value mean? b) What is the optimal consumption bundle i.e (F*,C*)? c) Also plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space
Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F
Suppose as Case 1, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and $10, respectively, then:
a) What is the value of MRS at the optimal point and what does this value mean?
b) What is the optimal consumption bundle i.e (F*,C*)?
c) Also plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space
Now assume a new Case 3, where instead of one time income change, Pc' = $15, holding all else the same as in Case 1, do the same analysis (parts a-c) and contrast your answers to Case 1. For part c, you should draw old (Case 1) and new (Case 3) budget lines/point of optimality.
Please answer and explain case 3 and draw draw old (Case 1) and new (Case 3) budget lines/point of optimality.
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