Donald derives utility from only two goods, carrots (X) and donuts (Y). His utility function is as follows: U(X, Y) = XY. Donald has an income (M) of $120 and the price of carrots (PX) and donuts (PY) are both $1. a) Find the marginal utility that Donald receives from carrots (MUX) and from donuts(MUY) b) Determine the marginal rate of substitution of X for Y (MRSXY) c) How does MRSXY change as the firm uses more X, holding utility constant. d) What is Donald's budget line and relative price (PX/ PY ) e) What quantities of carrots and donuts will maximize Donald's utility?
Donald derives utility from only two goods, carrots (X) and donuts (Y). His utility function is as follows: U(X, Y) = XY. Donald has an income (M) of $120 and the price of carrots (PX) and donuts (PY) are both $1. a) Find the marginal utility that Donald receives from carrots (MUX) and from donuts(MUY) b) Determine the marginal rate of substitution of X for Y (MRSXY) c) How does MRSXY change as the firm uses more X, holding utility constant. d) What is Donald's budget line and relative price (PX/ PY ) e) What quantities of carrots and donuts will maximize Donald's utility?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Donald derives utility from only two goods, carrots (X) and donuts (Y). His utility function
is as follows: U(X, Y) = XY. Donald has an income (M) of $120 and the price of carrots
(PX) and donuts (PY) are both $1.
a) Find the
donuts(MUY)
b) Determine the marginal rate of substitution of X for Y (MRSXY)
c) How does MRSXY change as the firm uses more X, holding utility constant.
d) What is Donald's budget line and relative price (PX/ PY )
e) What quantities of carrots and donuts will maximize Donald's utility?
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