Essay about Managerial Economics (Chapter 5)

1213 Words Apr 29th, 2013 5 Pages
Chapter 5: Question 3: Suppose that two units of X and eight units of Y give a consumer the same utility as four units of X and two units of Y. Over this range: a. If the consumer obtains one more unit of X, how many units of Y must be given up in order to keep utility constant ∆Y∆X=2-84-2= - 62= -3 ~ Utility unchanged, if consumer exchanges 3 units of Y for 1 unit of X. b. If the consumer obtains one more unit of Y, how many units of X must be given up in order to keep utility constant? ∆Y∆X= 4-22-8= 26= -13 ~ Utility unchanged, if consumer exchanges 1/3 units of X for 1 unit of Y. c. What is the marginal rate of substitution? X = 2, Y = 8 X = 4, Y = 2 ∆Y∆X=MRS -( 8-2 )( 2-4 )= - …show more content…
In the market, the consumer can purchase exactly 1 more Y by giving up 1 X. By giving up 1 X, the consumer gets more Y than the amount necessary to leave him or her just indifferent, so the consumer must be better off at point B when giving up X for more Y.

g. What combination is chosen if the budget line is MZ?

15X, 10Y

h. What is the price of Y?

Py × Y = 600 Py

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