Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F. Suppose as Case A, Total income is $120 and per unit prices of Food (F) and Cloth (C) are $2 and $10, respectively. 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. Plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space. d. Now suppose Case B, where assuming if income decreases to $100, holding all else the same, do the same analysis (parts a-c) and contrast your answers to Case A. For part c, you should draw old (Case A) and new (Case B) budget lines/point of optimality.
Q5. Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F.
Suppose as Case A, Total income is $120 and per unit prices of Food (F) and Cloth (C) are $2 and $10, respectively.
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. Plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space.
d. Now suppose Case B, where assuming if income decreases to $100, holding all else the same, do the same analysis (parts a-c) and contrast your answers to Case A. For part c, you should draw old (Case A) and new (Case B) budget lines/point of optimality.
![](/static/compass_v2/shared-icons/check-mark.png)
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![Microeconomics: Private and Public Choice (MindTa…](https://www.bartleby.com/isbn_cover_images/9781305506893/9781305506893_smallCoverImage.gif)
![Economics: Private and Public Choice (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781305506725/9781305506725_smallCoverImage.gif)
![Microeconomics: Private and Public Choice (MindTa…](https://www.bartleby.com/isbn_cover_images/9781305506893/9781305506893_smallCoverImage.gif)
![Economics: Private and Public Choice (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781305506725/9781305506725_smallCoverImage.gif)
![Micro Economics For Today](https://www.bartleby.com/isbn_cover_images/9781337613064/9781337613064_smallCoverImage.gif)
![Economics For Today](https://www.bartleby.com/isbn_cover_images/9781337613040/9781337613040_smallCoverImage.gif)