Let an individual's utility function be given as u(x1, x2)-2 (x1 x2). The price of x...

 

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Let an individual's utility function be given as u(x1, x2)-2 (x1 x2). The price of x & x2 are given by P & P2 respectively. Her total income is given by m. 100, x2 a. Compute the Marginal Rate of Substitution. (2) 12.5). Then, the individual's b. Initially, the individual consumes bundle (x1 consumption of the first good falls to x =50. What is the new level of consumption of good x2 that the individual needs to consume in order to reach the same utility level as before? (4) e. Find the consumer's Marshallian demand function for xi and x2. (4) d. If the price for the first good rises to pi= 50, how much less of good 2 will the individual consume? (2) Given the prices pi-1 and p2-2 for the first and the second good, respectively, and a budget of m 100, what is the best consumer choice? Illustrate your answers on a graph. (2+1) 2 Let an individual's utility function be given as u(x1, x2)-2 (x1 x2). The price of x & x2 are given by P & P2 respectively. Her total income is given by m. 100, x2 a. Compute the Marginal Rate of Substitution. (2) 12.5). Then, the individual's b. Initially, the individual consumes bundle (x1 consumption of the first good falls to x =50. What is the new level of consumption of good x2 that the individual needs to consume in order to reach the same utility level as before? (4) e. Find the consumer's Marshallian demand function for xi and x2. (4) d. If the price for the first good rises to pi= 50, how much less of good 2 will the individual consume? (2) Given the prices pi-1 and p2-2 for the first and the second good, respectively, and a budget of m 100, what is the best consumer choice? Illustrate your answers on a graph. (2+1) 2

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a To compute the Marginal Rate of Substitution MRS we can use the formula MRS ux2 ux1 where u is the utility function and x1 and x2 are the two goods ... View the full answer