John considers oranges (R) and mandarins (M) as perfect substitutes. He gets the same utility from con- suming one orange or two mandarins and the marginal utility of each is constant. The price of oranges and mandarins is PR = 4 and PM = 1, and John has income Y = 40. 1.1 Write the utility function and derive the marginal rate of substitution. 1.2 Derive the optimal choice of oranges and mandarins. If the price of mandarins increases to PM = 3, what happens? Graph the optimal choice in both cases.

John considers oranges (R) and mandarins (M) as perfect substitutes. He gets the same utility from con- suming one orange or two mandarins and the marginal utility of each is constant. The price of oranges and mandarins is PR = 4 and PM = 1, and John has income Y = 40. 1.1 Write the utility function and derive the marginal rate of substitution. 1.2 Derive the optimal choice of oranges and mandarins. If the price of mandarins increases to PM = 3, what happens? Graph the optimal choice in both cases.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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