(a) Let U(A,B) = (A)^1/3 (B)^2/3 , where A and B are two distinct consumption goods....

(a) Let U(A,B) = (A)^1/3 (B)^2/3 , where A and B are two distinct consumption goods. Compute the marginal utility for A, MU_A and the marginal utility for B, MU_B. Provide an interpretation for what these mean.

(b) Compute the marginal rate of substitution (MRS) for a consumer given the preference given in part (a).

(c) Provide an interpretation for what the MRS means.

(d) Explain why at the point (A, B) that maximizes a consumer’s utility function U(A, B) subject to her budget constraint, the consumer’s MRS will equal the relative price ratio.

(e) Two objects “pin down” the autarky price. That is, which two pieces of information if known, will automatically allow you to deduce the autarky price?

(f) True or false: how your relative demand curve is drawn depends on your endowment.

Expert Solution

Rahul Sunny answered 2 years ago

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