Answer to Question #70485 in Microeconomics for mani
Question #70485
Hungry Henry Hippo and Ravenous Rachel Raccoon live in different parts of the forest, but they happen to have the exact same preferences over three goods: apples, bananas, and cherries. The prices facing Henry are , 19B , pc) = (1, 1, l) , and the prices facing Rachel are (PA, , pc) = (3, l, 2) . You observe that Henry chooses consumption


vector a,b , c = (6, 24, 6), and you observe that Rachel chooses ê = 8. Unfortunately,
you were distracted by a lion, so you did not observe Rachel's choices â or b . You also do not directly observe Henry's wealth i' or Rachel's wealth i . You do know that their preferences are locally nonsatiated.
a. Find the set of values of â,b that are consistent with the weak axiom of revealed preference. Draw a graph of that set.
b. Now suppose that the lion tells you that Henry and Rachel's preferences can be represented by a CobbDouglas utility function u(a,b,c) = a Œ b P cY where > 0. Find ô,b). Does it lie in the set that you found in part a?


vector a,b , c = (6, 24, 6), and you observe that Rachel chooses ê = 8. Unfortunately,
you were distracted by a lion, so you did not observe Rachel's choices â or b . You also do not directly observe Henry's wealth i' or Rachel's wealth i . You do know that their preferences are locally nonsatiated.
a. Find the set of values of â,b that are consistent with the weak axiom of revealed preference. Draw a graph of that set.
b. Now suppose that the lion tells you that Henry and Rachel's preferences can be represented by a CobbDouglas utility function u(a,b,c) = a Œ b P cY where > 0. Find ô,b). Does it lie in the set that you found in part a?
Expert's answer
Comments
Leave a comment