Question

Suppose a consumer has the utility function U (x, y) = xy + x + y....

Suppose a consumer has the utility function U (x, y) = xy + x + y. Recall that for this function the marginal utilities are given by MUx(x,y) = y+1 and MUy(x,y) = x+1.

(a) What is the marginal rate of substitution MRSxy?

(b)If the prices for the goods are px =$2 and py =$4,and if the income of the consumer is M = $18, then what is the consumer’s optimal affordable bundle?

(c) What if instead the prices are px = $3 and py = $3 (and income is still M = $18)?

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