Sara’s utility function is u(x1, x2) = (x1 + 2)(x2 + 1). a. Write an equation...

Sara’s utility function is u(x1, x2) = (x1 + 2)(x2 + 1).

a. Write an equation for Sara’s indifference curve that goes through the point (2,8).

b. Suppose that the price of each good is 1 and that Clara has an income of 11. Draw her budget line. Can Sara achieve a utility of 36 with this budget? Why or why not?

c. Evaluate the marginal rate of substitution MRS at (x1, x2) = (1, 5). Provide an economic interpretation for MRS(1, 5).

d. Write down the related utility maximization problem.

e. Write down the Lagrangian for the maximization problem.

f. Find the optimal choice by providing all the important steps

Solutions

Expert Solution

Rahul Sunny answered 1 month ago

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