Question #98647

3. A consumer’s utility function is given by U = XY, where MUX = Y and MUY = X.

a. What is the utility derived from 1 unit of X and 2 units of Y? What is the utility derived from 2 units

of X and 1 unit of Y? What is the utility derived from 5 units of X and 2 units of Y?

b. How does the consumer rank the following bundles?

Bundle Quantity of X Quantity of Y

A 2 2

B 10 0

C 1 5

D 3 2

E 2 3

c. Graph indifference curves that show the bundles of X and Y for which U = 6 and U = 8. Is the “more

is better” assumption satisfied for X and Y?

a. What is the utility derived from 1 unit of X and 2 units of Y? What is the utility derived from 2 units

of X and 1 unit of Y? What is the utility derived from 5 units of X and 2 units of Y?

b. How does the consumer rank the following bundles?

Bundle Quantity of X Quantity of Y

A 2 2

B 10 0

C 1 5

D 3 2

E 2 3

c. Graph indifference curves that show the bundles of X and Y for which U = 6 and U = 8. Is the “more

is better” assumption satisfied for X and Y?

Expert's answer

Solution:

a) MUx=2, MUy=1,

MUx=1, MUy=2,

MUx=2, MUy=5.

b) x y U

A 2 2 4

B 10 0 0

C 1 5 5

D 3 2 6

E 2 3 6

c) If U=6, the graph will look like

If U=8, the graph will look like

Is the “more is better” assumption satisfied for X and Y?

Depends on budget constraints.

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