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Please show work. Ray Starr has the utility function U(x, y) = y/(100 x). a. Does...

Please show work.

Ray Starr has the utility function U(x, y) = y/(100 x).

a. Does Ray prefer more to less of both goods?

b. Draw a diagram showing Ray’s indifference curves corresponding to the utility levels U = 1/2, U = 1, and U = 2.

c. How can you describe the set of indifference curves for Ray?

d. If the price of x is $1 and the price of y is $1, find Ray’s demand for x as a function of his income and draw a diagram showing his Engel curve for x.

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Homework Answers

Answer #1

1.MRS=MUx/MUy

MUx=-y/100x^2

MUy=1/100x^2

MRS=-y/x

Since,MRS is not falling the ICs are not convex to the origin.It means more of goods would not be preferred.

2.

3.Indifference curve are concave the the origin.MRS is rising.It means x is an economic bad and y is an economic good because the utility is rising when consumer is moving towards the y axis.

d.MRS=MRT

MRT=PX/PY=1

MRS=Y/X

Therefore,Y=X

Px*X+Py*Y=M

Px*X+Py*X=M

X(Px+Py)=M

X=M/px+py

Y=M/px+py

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