Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Chapter 2, Problem 2.7P
(a)
To determine
To show: If
(b)
To determine
To show:Solving problem for
(c)
To determine
To find:The optimal solution when
(d)
To determine
To find:The solution for the problem when
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Explain why the lifetime budget constraint must be satisfied as a strict equality
QUESTION 8
If the ulitity function is: U=11x1 + 46x2
How many units of x2 is the consumer willing to pay to get 3 more unit of x1? (hint: remember how to obtain the
opportunity cost of x₁ using MRS. ENTER THIS NUMBER AS POSITIVE!!! NO NEGATIVE NUMBERS!!!!)
9. Consider an Edgeworth box economy with two consumers, whose utility func-
tions and endowments are
u'(x},x}) = (x}Xx})}
(5,5)
In the following, use the normalization p2 = 1.
(a) Find the competitive equilibrium price.
(b) State the first fundamental theorem of welfare and verify that it holds in
this economy.
(e) Consider the allocation ĩ = (x',) = (2,3), (8, 7). Show whether this allo-
cation can supported as an equilibrium with transfers.
(d) State the second fundamental theorem of welfare, and briefly discuss whether
the result in part (c) conform with or violate this theorem.
3.
Chapter 2 Solutions
Microeconomic Theory
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