Reference no: EM131007400
A. Kingsley consumes units of goods X and Y. He faces a market which prices X at $a/unit, and Y at $b/unit. His total budget is $60.
1) Write the budget equation that Kingsley faces.
2) Sketch the graph of Kingsley’s budget line for goods X and Y.
3) Write the equation of the budget line in slope-intercept form. Identify the slope.
4) Sketch the optimal bundle and the indifference curve. How would you prove algebraically that this is the optimal bundle?
B. Suppose Kingsley has a utility function U = 2xcyd
1) Find the marginal utility for goods 1 and 2.
2) Determine the marginal rate of substitution of good 1 for good 2.
3) Derive the demand function for Good X (Hint: Solve the MRS equation in terms of Y, then substitute into the budget equation; solve for X).
4) Using the same rationale from 3), derive the demand function for Good Y.
5) Determine the inverse demand function for Good X (rearrange the demand function – solve in terms of price).
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Write the budget equation that kingsley faces
: Write the budget equation that Kingsley faces. Sketch the graph of Kingsley’s budget line for goods X and Y. Write the equation of the budget line in slope-intercept form. Identify the slope. Find the marginal utility for goods 1 and 2.Determine the ..
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