Utility maximization. (14 points) GLS Ch4.app P3. Suppose that there are two goods (X and Y). The...

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Utility maximization. (14 points) GLS Ch4.app P3. Suppose that there are two goods (X and Y). The price of X is $2 per unit, and the price of Y is $1 per unit. There are two consumers (A and B). The utility functions for the consumers are UA(X, Y ) = X 0.5Y 0.5 UB(X, Y ) = X 0.8Y 0.2 Consumer A has an income of $100, and Consumer B has an income of $300. (a) (6 points) Solve the constrained utility-maximization problems for Consumer A and Consumer B. (b) (4 points) Calculate the marginal rate of substitution for each consumer at his or her optimal consumption bundles. 1 (c) (4 points) Suppose that there is another consumer (let’s call her C). You don’t know anything about her utility function or her income. All you know is that she consumes both goods. What do you know about C’s marginal rate of substitution at her optimal consumption bundle? Why?

Robert · Accepted Answer

Solution-a 
  For A,
Solution-b 
The first term used in the first two FOCs are MUY and MUX, So…..
Solution-c 
The MRS is equal to 2 for both A and B, even their income and utility function are not similar, C 
also equal to 2.

Utility maximization. (14 points) GLS Ch4.app P3. Suppose that there are two goods (X and Y). The price of X is $2 per unit, and the price of Y is $1 per unit. There are two consumers (A and B). The...

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