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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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

Coming
on to the main solution, we have been given a
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
of each other. The utility cusive in this case is
represented by a down word sloping straight line. At
every point on the curve, the MRS remains constant,
unlike a
Convex
Utility curve, in which
regular
MRS reduces from left to eight
Note: When a consumer.
faces perfect dubstitute
utility function, then he/she
Consumes at the corner point.
It depends upon the ratio between
Marginal Utilities of particular good and its
respective police.
мох
Px
For eg. if.
if,
мор
Pr
>
U(X,Y)= 4x+ 3 Y
MUX = du(x, y) 4
১U(X,
=
ах
+XR³ x 4 = 1/2/3/1 = 1.
4
мож
Py
мох
Px
-
=1.33
Corner
Points
)
1
U=ax+by
^
cosner
then only x good is consumed
Ju(x,x) = 3
۵۷
points
then only Y-good is consumed.
MUY = JU(X,Y)

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