Q12. Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F. Suppose as Case X, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and $15, respectively. a. What is the value of MRS at the optimal point and what does this value mean? b. What is the optimal consumption bundle i.e (F*,C*)? c. Plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space.
Q12. Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F. Suppose as Case X, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and $15, respectively. a. What is the value of MRS at the optimal point and what does this value mean? b. What is the optimal consumption bundle i.e (F*,C*)? c. Plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space.
Chapter7: Consumer Choice: Maximizing Utility And Behavioral Economics
Section: Chapter Questions
Problem 6QP
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Q12. Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F.
Suppose as Case X, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and $15, respectively.
a. What is the value of MRS at the optimal point and what does this value mean?
b. What is the optimal consumption bundle i.e (F*,C*)?
c. Plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space.
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