Q5. Jason has preferences defined over novels (good x) and DVDs (good y) described by the utility function U(x,y)= x2y2. He has an income of $120; novels cost $5 each, while DVDs are priced at $15 each. [Hint: MUx=2xy2, MUy=2x2y] a) Sketch Jason's budget constraint, indifference curves and the interior solution in a graph. b) Calculate Jason's optimal consumption bundle, and his maximized utility level. Suppose the price of novels increases to $7.5, while the price of DVDs and income are unchanged. c) Calculate his new optimal bundle, show it in the same graph from a), and interpret the Marginal Rate of Substitution (MRS) at this new optional bundle (point).
Q5. Jason has preferences defined over novels (good x) and DVDs (good y) described by the utility function U(x,y)= x2y2. He has an income of $120; novels cost $5 each, while DVDs are priced at $15 each. [Hint: MUx=2xy2, MUy=2x2y] a) Sketch Jason's budget constraint, indifference curves and the interior solution in a graph. b) Calculate Jason's optimal consumption bundle, and his maximized utility level. Suppose the price of novels increases to $7.5, while the price of DVDs and income are unchanged. c) Calculate his new optimal bundle, show it in the same graph from a), and interpret the Marginal Rate of Substitution (MRS) at this new optional bundle (point).
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter6: Consumer Choice And Demand
Section: Chapter Questions
Problem 6QFR
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Q5. Jason has preferences defined over novels (good x) and DVDs (good y) described by the utility function U(x,y)= x2y2. He has an income of $120; novels cost $5 each, while DVDs are priced at $15 each. [Hint: MUx=2xy2, MUy=2x2y]
a) Sketch Jason's budget constraint, indifference curves and the interior solution in a graph.
b) Calculate Jason's optimal consumption bundle, and his maximized utility level.
Suppose the price of novels increases to $7.5, while the price of DVDs and income are unchanged.
c) Calculate his new optimal bundle, show it in the same graph from a), and interpret the Marginal Rate of Substitution (MRS) at this new optional bundle (point).
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