Question

(Hajikhameneh & Rietz) Answer the following questions for a consumer with utility function U(x, y) = x2 y2 and a budget constraint of g(x, y) = 2x + 4y = 40. You must show all of your work for full credit. a. What is the marginal utility of x? of y? b. In one to two sentences, define the economic meaning of the term “marginal utility.” c. What is the marginal rate of substitution for the given utility function? d. In one to two sentences define the economic meaning of the term “marginal rate of substitution.” e. Using the Lagrange multiplier method, find the (Marshallian) demand curves for x and y. Use lambda λ as the Lagrange multiplier. f. In a sentence or two, define the economic meaning of the Lagrange multiplier.

Answer 1