Comingon to the main solution, we have been given aperfect substitute utility function. Remember, if anyutility functionUjs in the form: U = ax + by, thenit means that goods X and Y areperfect dubstitutesof each other. The utility cusive in this case isrepresented by a down word sloping straight line. Atevery point on the curve, the MRS remains constant,unlike aConvexUtility curve, in whichregularMRS reduces from left to eightNote: When a consumer.faces perfect dubstituteutility function, then he/sheConsumes at the corner point.It depends upon the ratio betweenMarginal Utilities of particular good and itsrespective police.мохPxFor eg. if.if,морPr>U(X,Y)= 4x+ 3 YMUX = du(x, y) 4১U(X,=ах+XR³ x 4 = 1/2/3/1 = 1.4можPyмохPx-=1.33CornerPoints)1U=ax+by^cosnerthen only x good is consumedJu(x,x) = 3۵۷pointsthen only Y-good is consumed.MUY = JU(X,Y)

Since the utility function is in the additive form hence we know that it is the utility function of…

on to the main solution, we have been given а Coming perfect substitute utility function. Remember, if any utility function Ujs in the form: U = ax + by, then it means that goods X and Y are perfect dubstitutes each other. The utility curive in this case is represented by a down ward sloping straight line. At every point on the curve, the MRS remains constant, unlike a regular convex - Utility curve, in which MARS reduces from left to right of Note: when a consumer. faces perfect dubstitute utility function, then he/she Consumes at the corner point. It depends upon the ratio between o Marginal Utilities of particular good respective police. мох For eg. if, Px if, MUY > Pr U(X,Y)= 4x+ 3 Y MUX = JU(x, y) _ 4 ১U(X, = dx мож Py мох Px Corner Points ) 1 U=ax+by and its ^ Corner points then only x good is consumed MOY = ১০(XY) = 3 Y then only Y-good is consumed.

on to the main solution, we have been given а Coming perfect substitute utility function. Remember, if any utility function Ujs in the form: U = ax + by, then it means that goods X and Y are perfect dubstitutes each other. The utility curive in this case is represented by a down ward sloping straight line. At every point on the curve, the MRS remains constant, unlike a regular convex - Utility curve, in which MARS reduces from left to right of Note: when a consumer. faces perfect dubstitute utility function, then he/she Consumes at the corner point. It depends upon the ratio between o Marginal Utilities of particular good respective police. мох For eg. if, Px if, MUY > Pr U(X,Y)= 4x+ 3 Y MUX = JU(x, y) _ 4 ১U(X, = dx мож Py мох Px Corner Points ) 1 U=ax+by and its ^ Corner points then only x good is consumed MOY = ১০(XY) = 3 Y then only Y-good is consumed.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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