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An individual consumer’s utility function and the budget constraint are described below. (ch. 5). U =...

An individual consumer’s utility function and the budget constraint are described below. (ch. 5). U = x1x2 s.t. m = p1x1 + p2x2 where, m = $100, p1 = $5, and p2 = $2. (i) Find the marginal rate of substitution between x1 and x2. [Show your work] (ii) Find the slope of the budget constraint. [Show your work] (iii) Given the answers to (i) and (ii), find the optimal amount of each good, x⇤ 1 and x⇤ 2. [Show your work] (iv) Interpret the meaning of the answer you found in (iii).

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Rahul Sunny answered 2 years ago
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