QUESTION 1 Consider the standard utility maximization problem: maxU = U(x, y) subject to P x +P y = B, where P and y P denote the price of goods x and y, respectively, and B represents the consumer's available income. (a) Write the (b) Assume that U = xy, P = 1, P = 4 and Lagrangian function and obtain the first-order conditions. B=120. Find along with the optimal levels of purchase x and y. Calculate U Bordered Hessian matrix, verify that the second-order conditions for a maximum are satisfied. (c) Using the
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- 1. A consumer has the utility function U(x,y) = 2x y' where x and y represent the quantity consumed of goods X and Y. a) Find the consumer's marginal rate of substitution of X for Y. For parts (b) and (c) assume that the consumer has $100 to spend on goods X and Y which have fixed prices of px=1 and py=3. Use the Lagrangian method to solve the consumer's optimization problem: b) What are the first order conditions of the Lagrangian. Assume the solution to the consumer's optimization problem is c) interior. Solve for the consumer's optimal consumption bundle for any prices and income.3) Oğuz has the utility function U(x1,X2) = x:*x2². (X: nuts, X2: berries). %3D a) If Oğuz has 25 units of nuts and 17 units of berries, the price of nuts is 2 and the price of berries is 1 liras, what would be the optimal consumption of Oğuz? b) Assume the prices change, so that nuts cost 1 and berries cost 3 liras. What is the new demand? In this change, What is the pure substitution effect? What is the income effect? c) In the change calculated in part (b), what is the pure substitution effect? d) In the change calculated in part (b), what is the income effect? In the change calculated in part (b), what is the endowment effect?a good is normal, then an increase in the price of the good will lead to which of the following to be true for this good? (Assume that there are only two goods, the individual's preferences lead to well-behaved preferences with strictly convex indifference curves and an interior solution for all budgets). Let SE = substitution effect, IE = income effect) (a) The magnitude of the IE for this good must be larger than the magnitude of the SE (b) The magnitude of the SE for this good must be larger than the magnitude of the IE (c) The good could be a Giffen good d) The good must be an ordinary good ( (e) None of the above
- Suppose a consumer has a monthly income of m = 100 which she spendson two commodities: french fries (x1) and beef jerky (x2). The price offrench fries is p1 = 2 and the price of beef jerky is p2 = 5.(a) Write down the consumer’s budget constraint (equation).(b) What is the maximal consumption of french fries (this is calledthe real income in french fries).(c) Find the maximal consumption of beef jerky (real income interms of beef jerky).A student has a lunch utility function U(S, P) 8S + 3P, where S is number of salads per month and P is number of pizzas per month. The price of a salad is $5, the price of a pizza is 8, and his monthly income for lunch is $80. a) Derive the equation representing the consumer's demand for Salad. Represent the demand for Salad graphically. b) The price of Salad goes up to $25 and the price of Pizza does not change. Compute and represent graphically the new equilibrium of the student. What can you tell about the substitution effect on Salad and pizzaAssume a consumer with the utility functionU(X,Y)=X²Y²and the typical budget constraintM= PxX+ PyY a. Derive the consumer’s demand for X and Y in terms of the parameters.b. If income of the consumer is 100, price of X is 2 and price of Y is 4, what the quantities of X and Y that gives the consumer maximum satisfaction?c. What is the consumer’s marginal rate of substitution between X and Y
- 1 Marginal utility and marginal rate of substitution Suppose an individual who derives utility u(x, y) from consuming a units of good X and y units of good Y. For each of the following utility functions, derive the marginal utility of good X, the marginal utility of good Y, and the marginal rate of substitution between X and Y. (A) u(x, y) = x+by¹/3 (B) u(x, y) = (xy) (C) u(x, y) = ax + xy + by² (D) u(x, y) = n(ax + y) 1 (E) u(x, y) = (x² + √y²) = 2Task 3: Pizza or Beer? Tom is a student and Maastricht university and his diet consists of beer and pizza. He's utility function for pizza and beer is given by U(B, P) = VBVP1 Consider a consumer who consumes only two goods, 21 and z2. His utility function is u (21, 22) = In z1 + 2. where In represents the natural logarithm. 1.a Derive the consumer's MRS of good 1 for good 2 using calculus to calculate his marginal utility from z and his marginal utility from z2. 1.b If the price of z1 is $2 per unit and the price of z2 is $4 per unit, and the consumer's income is $100, What is the equation of this consumer's budget line? 1.c What are the optimal consumption choices, z and z5, for this consumer? Show your work.
- An individual’s utility function is given byU = x1√x2where x1 and x2 denote the monthly consumption of two goods. Unit prices of these goodsare $2 and $4 respectively, and the total monthly expenditure on these goods is $300.(a) Write down the budgetary constraint.(b) Find the optimal quantities of x1 and x2 the maximize U.(c) Verify that the stationary point is a maximum.Question 4: Consider a general utility function U(x₁, x₂). Let's now solve for the optimal bundle generally using the Lagrangian Method. 1. Write down the objective function and constraint in math. 2. Set up the Lagrangian Equation. 3. Fnd the first derivatives. 4. Find the first order conditions. What's the interpretation for >? 5. Rearrange them to get the tangency condition.Questions 1. Will's utility from vacations (91) and meals (92) is given by the function U(V, M) = 91 x 92. Last year, the price of vacations was $200 and the price of meals was $50. This year, the price of meals rose to $75, while the price of vacations remained the same. Both years, Will had an income of $1500. (a) What is the compensating variation for the price change in meals? (b) What is the equivalent variation for the price change in meals?