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6.a.What is the Consumption Balance Equation that expresses the optimum of the consumer? Relate this to the Substitution Balance Equation. b.Do the equations hold for an interior solution, a corner solution, or both? Explain the relation between Marginal Value and Marginal Rate of Substitution. What are the differences between them? a. Characterize the following demand function for good x, (I.e. is good x regular, normal, and so forth?) Is the demand elastic or inelastic? Suppose the Price is 18, what is its marginal revenue when the firm increases its output by (a) 1 unit of x, (b) 5 units of x? Find the marginal rate of substitution in consumption for the utility function and determine its value at x = 2, y = 3 U (x, y) = 5x² + x²y + y²+6y Group Work – This should be completed by each group. Using excel, draw indifference curve for U = xy and the budget line for ß = 120, Px = 3, Py = 4 and find: the optimal values of x and y, and the optimal value of the utility.

6.a.What is the Consumption Balance Equation that expresses the optimum of the consumer? Relate this to the Substitution Balance Equation.

b.Do the equations hold for an interior solution, a corner solution, or both?

  1. Explain the relation between Marginal Value and Marginal Rate of Substitution. What are the differences between them?
    • a. Characterize the following demand function for good x,

    (I.e. is good x regular, normal, and so forth?) Is the demand elastic or inelastic?

    • Suppose the Price is 18, what is its marginal revenue when the firm increases its output by (a) 1 unit of x, (b) 5 units of x?
    • Find the marginal rate of substitution in consumption for the utility function and determine its value at x = 2, y = 3

    U (x, y) = 5x² + x²y + y²+6y

    • Group Work – This should be completed by each group.

    Using excel, draw indifference curve for U = xy and the budget line for ß = 120, Px = 3, Py = 4 and find:

    • the optimal values of x and y, and
    • the optimal value of the utility.

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