Let the utility function be given by: U(x, y) = min{2x, 3y} where px and py are the corresponding prices and m is the income. 1. On a graph, draw a couple of the indifference curves. Make sure label the ‘kinks’ precisely. 2. Find the optimal bundles x∗ and y∗. Give an algebraic expression for the relationship between x and y at the optimal bundles. 3. Graph the income offer curve for these preferences. What’s the common feature of the income offer curve for perfect substitutes and perfect
Marginal Rate of Technical Substitution
MRTS reaches a manufacturer when a part of the product is lowered to sustain the manufacturing level when the other part is extended. It is the level of the quantity that is lowered when one extra volume is used, and the output is unchanged.
Preferences and Utility Analysis
Before understanding what is preference and utility analysis, it is very important to understand the terms preference and utility separately.
Let the utility function be given by: U(x, y) = min{2x, 3y} where px and py are the corresponding prices
and m is the income.
1. On a graph, draw a couple of the indifference curves. Make sure label the ‘kinks’ precisely.
2. Find the optimal bundles x∗ and y∗. Give an algebraic expression for the relationship between x and y at the optimal bundles.
3. Graph the income offer curve for these preferences. What’s the common feature of the income offer
curve for perfect substitutes and perfect complements? [Hint: All homothetic preferences which include
these two and also Cobb-Douglas, share this feature.]
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