Answer to Question #166794 in Microeconomics for SYEDA ZAINAB

Question

Q: A consumer's utility function is given by the expression: U = (0.6X^0.5+ 0.4Y^0.5)².

• Determine the marginal utility functions for each commodity. Does marginal utility decrease when consumption increases?
• Assuming that the price of good X is Rs 15 and the price of Y is Rs 6, write the equation of the budget line and plot it when income is Rs 450. What is its slope? What does it indicate?
• Calculate the marginal rate of substitution of Y for X and interpret its economic meaning. Write the equation showing the consumer's equilibrium condition.
• Obtain the equilibrium values of X and Y.
• Find the expressions for change in MU_x due to an increase in Y and change in MU_y due to an increase in X.

Answer 1

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