The utility that James receives by consuming good X and good Y is given by u(X,Y)...

The utility that James receives by consuming good X and good Y is given by u(X,Y) = XY.

5.1) Draw the indifference curve associated with a utility level of 12 and the indifference curve associated with the utility level of 36.

5.2) Suppose that X costs $1 per unit and Y $3 per unit. James has $12 to spend on X and Y. Graph the budget line that he faces.

5.3) Derive James' demand functions. What is the utility-maximizing choice of X and Y (solve the problem both mathematically and graphically).

5.4) What is the marginal rate of substitution of X for Y when utility is maximized? Give a concise explanation of the meaning of the marginal rate of substitution.

5.5) Suppose James buys 3 units of X and 3 units of Y with her $12 budget. What is his MRS of X for Y? What is he willing to do to have his MRS equal to the price ratio?

Just the solution to 5.5 please.

Expert Solution

Rahul Sunny answered 2 years ago

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