Question

1)Find

Marginal Utility for x and determine if it is diminishing

Marginal utility for y and determine if its diminishing

Marginal rate of Substitution of x for y (MRS_xy) and determine if its diminishing

U (x, y) = 2x^2/3y^1/3

U (x, y) = x³ + 4y^1/4

2. Continental Long Distance Telephone service offer am optional package for in-stare calling whereby each month the subscriber gets the first 50 minutes of in-state calls free, the next 100 min at $0.25/min, and each additional time at the normal rate of $0.50/min. Draw the budget constraint for in-state phone calls and the composite good for a subscriber with an income of $400/month.

Composite goods imply all other goods: Assume it costs $1 and its on the horizontal axis.

Answer 1