Peter's utility function: U(x, y) = 4x + y Peter's income is 200 and the price of good x is 5 and the price of good y is 3. a) Draw the indifference curves representing the utility of U = 100 and U = 160 b) Show graphically where we can find the tangency point and calculate the optimum bundle. c) Briefly explain what is meant by 'diminishing marginal rate of substitution'. Is Peter's MRS diminishing? Briefly explain

Peter's utility function: U(x, y) = 4x + y Peter's income is 200 and the price of good x is 5 and the price of good y is 3. a) Draw the indifference curves representing the utility of U = 100 and U = 160 b) Show graphically where we can find the tangency point and calculate the optimum bundle. c) Briefly explain what is meant by 'diminishing marginal rate of substitution'. Is Peter's MRS diminishing? Briefly explain

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Peter's utility function:

U(x, y) = 4x + y

Peter's income is 200 and the price of good x is 5 and the price of good y is 3.

a) Draw the indifference curves representing the utility of U = 100 and U = 160

b) Show graphically where we can find the tangency point and calculate the optimum bundle.

c) Briefly explain what is meant by 'diminishing marginal rate of substitution'. Is Peter's MRS diminishing? Briefly explain.

Defintion Defintion Curve that represents the graphical relationship between the total supply of goods and services and the price level in the economy. When the price level increases, producers tend to supply more of a product in the market to earn a higher revenue or vice versa.

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