Question

In: Economics

For each of the following, draw the indifference curves and budget constraint, and find the utility...

For each of the following, draw the indifference curves and budget constraint, and find the utility maximizing demands. Remember, don’t plug in the given prices and income until the end.

u(x1,x2)=(x1)^2(x2), (p1,p2,m)=(1,2,10)

Solutions

Expert Solution

The MRS would be as or or or or or , ie . The budget constraint would be , and the slope would be as or or .

The optimal combination of goods would be where MRS is equal to the slope of budget constraint, ie where or or . Putting this in the budget constraint, we have or or and since , we have or or . These are the required demand for good 1 and 2.

For the given values, we have the demands as or and or . The utility level would be or or .

We have the graph as below.

Rahul Sunny answered 2 years ago
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