Suppose a consumer wants to buy a new house and has a budget of 50 million. The consumer cares only about the size (S) of the house and the quality of construction (Q) of the house. Assume that if the consumer wants one more unit of size, then the builder wants 10 million. If the consumer wants one more unit of quality, then the builder wants 5 million. (a) Draw the consumer's budget line for size and quality. Place size on the horizontal axis. (b) Suppose the consumer's preferences are such that the marginal rate of substitution is equal to (-4S)/Q. What value of each index will the consumer like to have in her house?( ( (c) Suppose the consumer's marginal rate of substitution is (-S)/Q. What value of each index will the consumer like to have in her house?

Suppose a consumer wants to buy a new house and has a budget of 50 million. The consumer cares only about the size (S) of the house and the quality of construction (Q) of the house. Assume that if the consumer wants one more unit of size, then the builder wants 10 million. If the consumer wants one more unit of quality, then the builder wants 5 million. (a) Draw the consumer's budget line for size and quality. Place size on the horizontal axis. (b) Suppose the consumer's preferences are such that the marginal rate of substitution is equal to (-4S)/Q. What value of each index will the consumer like to have in her house?( ( (c) Suppose the consumer's marginal rate of substitution is (-S)/Q. What value of each index will the consumer like to have in her house?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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part C D