please provide the solution Chapter 5 consumer faces l. The following figure sho

Question

please provide the solution

Chapter 5 consumer faces l. The following figure shows a portion of a consumer's indifference map. The he budget line ZL and the price of Yis $20 10 20 25 30 35 Quantity of good X a. The consumers income The price of X is b. The equation for the budget line ZL is Y c. What combination ofXand Y would the consumer choose? Why? d. The marginal rate of substitution a the combination in part c is e. plain in terms of the MRS why the consumer would not choose either combination A or f. If the budget line pivots to ZM, the consumer chooses units of good X and units of good Y. g. ng budget line ZM, the price of X is h. The new MRS is equal to and the price of Y is i. 6. The following table shows the marginal utility for each of six units of X and Y. e price of X is $4 and the price of Y is $2. Quantity MU MUY 20 16 12

Explanation / Answer

(a) When X = 0, Y = 30. So, Total income = 30 x $20 = $600

Price of X = $600 / horizontal intercept = $600 / 30 = $20

(b) Equation for budget line: M = X. PX + Y. PY

600 = 20X + 20Y

X + Y = 30

Y = 30 - X

(c) Consumer will choose X = 15 & Y = 15 because at this combination, indifference curve II is tangent to budget line.

(d) MRS = 15 / 15 = 1

(e) Combinations A or B will not be chosen because both of them lie on a lower indifference curve (I), which yields lower utility level.

(f) He chooses 10X and 15 Y because at this combination, indifference curve I is tangent to ZM.

Note: First 6 sub-questions are answered.

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