Mitchell\'s money income is $150. The price of X is $2 and the price Y is $2. Gi
ID: 1217337 • Letter: M
Question
Mitchell's money income is $150. The price of X is $2 and the price Y is $2. Given these prices and income, Mitchell buys 50 units of X and 25 units of Y. Call this combination of X and Y, bundle J. At bundle J, Mitchell's MRS is 2.
a. At bundle J, if Mitchell increases consumption of Y by 1 unit, how many units of X can he give up and still reach the same level of utility?
b. Given these prices and income, what is Mitchell's equilibrium consumption of X?
c. At bundle J, if Mitchell increases consumption of Y by 1 unit, how many units of X must he give up in order to satisfy his budget constraint?
Explanation / Answer
MRS=Px/Py
a) for one extra unit of consumption of y, he has to sacrifice 1/2 units of x
b) equilibrium consumption of x given price and quantity is 50
c) in order to satisfy its budget constraint, in order to increase consumption of y by 1 unit, he must give up 1 unit of x.