Lionel eats ham (x) and cheese (y). The utility function U(x,y)=0.25x + 2y^0.5 represents his preferences. a) What is Lionel’s MRS? Holding y constant, how does his MRS change as ham (x) is increased? b) What does your answer in (a) imply about his indifference curves as you hold y constant and increase x? In (c) and (d) you are asked about the Marshallian and Hicksian Demands for cheese (y). Do NOT calculate the demand functions to answer these questions. Use your answers to (a) and (b) to explain your answer. c) Holding prices constant, what is the effect of an increase in income on his Marshallian demand for cheese (y)? Briefly explain your answer.
Lionel eats ham (x) and cheese (y). The utility function U(x,y)=0.25x + 2y^0.5 represents his preferences.
a) What is Lionel’s MRS? Holding y constant, how does his MRS change as ham (x) is increased?
b) What does your answer in (a) imply about his indifference
In (c) and (d) you are asked about the Marshallian and Hicksian Demands for cheese (y). Do NOT calculate the demand functions to answer these questions. Use your answers to (a) and (b) to explain your answer.
c) Holding prices constant, what is the effect of an increase in income on his Marshallian demand for cheese (y)? Briefly explain your answer.
d) Holding prices constant, what is the effect of an increase in utility on his Hicksian demand for cheese (y)? Briefly explain your answer.
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