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.