QUESTION 4 A consumer has an income of $11,746. She consumes only two goods, Goo

Question

QUESTION 4 A consumer has an income of $11,746. She consumes only two goods, Good A and Good B. Good A costs $1.43 each and a Good B costs $4.4 each. If Good A is on the vertical axis and the marginal rate of substitution is equal to -GA/QB what is the optimal amount of consumption of Good A? (Do not forget to include the sign and round to two decimal places) QUESTION 5 A consumer has an income of $48,802. He consumes only two goods, Good A and Good B. Good A costs $2.44 each and a Good B costs $3.76 each. If Good A is on the vertical axis and the marginal rate of substitution is equal to -GA/qB what is the optimal amount of consumption of Good B? (Do not forget to include the sign and round to two decimal places)

Explanation / Answer

Ans 4

Optimal consumption is achieved when MRS=-pa/pb and as per the info. in question we have MRS=-qa/qb

We have pa=$1.43 and pb=$4.4

qa/qb=4.4/1.43

1.43qa=4.4qb

1.43/4.4qa=qb

Now we have budget equation as well therefore

paqa+pbqb=11746

1.43qa+4.4qb=11746

1.43qa+4.4(1.43/4.4)qa=11746

2.86qa=11746

qa=4106.99and qb=(1.43/4.4)*4107=1334.78

Ansnwer is Optimal consumption of good A is 4106.99 units

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