estion 1 Calculating MRS for CD Utility Functions (a) If a consumer has a CD utility function U(91,92) = 90.4996, calculate MRS1,2. (b) If a consumer has a CD utility function U(91,92) = 992, calculate MRS1,2. (c) If a consumer has an utility function U(91,92) = a ln(91) + (1 - a) In (92), calculate MRS1,2. Is it the same as the result in the previous part?
estion 1 Calculating MRS for CD Utility Functions (a) If a consumer has a CD utility function U(91,92) = 90.4996, calculate MRS1,2. (b) If a consumer has a CD utility function U(91,92) = 992, calculate MRS1,2. (c) If a consumer has an utility function U(91,92) = a ln(91) + (1 - a) In (92), calculate MRS1,2. Is it the same as the result in the previous part?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:solutions.
Question 1
Calculating MRS for CD Utility Functions
(a) If a consumer has a CD utility function
0.4 0.6
U(91,92) = 994926,
calculate MRS1,2.
(b) If a consumer has a CD utility function
Ima kdown1
calculate MRS1,2.
(c) If a consumer has an utility function
noltan
asd Tor
sympy
,1-α
U(91,92) = 91 92 llib et (.) orde
(hing aid tol bholup
U(91,92) = a ln(91) + (1 - a) ln(92), diw sonuanos of
calculate MRS1,2. Is it the same as the result in the previous part?
(Note: Recall that we discussed the concept of ordinal utility in class, which means
only the order of utility matters, not its magnitude. In function is a monotone
transformation on the CD utility function. Notice that In (qq) = a ln(9₁) + (1 -
a) ln(92). This example verifies that a monotone transformation does not change
*(S) sidshav
the consumer's indifference curves.)
wobei/ (d)
Expert Solution
Step 1
The marginal rate of substitution is the rate at which one good is substituted by another good to keep utility constant.
Mathematically
Here MU denotes marginal utility.
Marginal utility is calculated by taking the partial derivative of the utility function.
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