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Question 2
Question 2 (15 pts) A consumer has preferences represented by the utility function u(x,y) -xlyi. (This means that a. What is the marginal rate of substitution? b. Suppose that the price of good x is 2, and the price of good y is 1. The consumers income wWhat is the optimal quantity is 20. What is the optimal quantity of x and y the consumer will choose? c. Suppose the price of good x decreases to 1. The price of good y and the consumers income are unchanged. How much will the consumer increase his consumption of x after the price change? d. Based on your calculations in part b and c, what is the own price elasticity of demand for good x?
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