Question

Problem 6. Two economics professors are having an argument. They both want to model how MacDonald chooses between bundles of junk news and oranges. Professor "I Know All" claims that MacDonald maximizes the utility function u(j.xo)- x xo Professor "I am the smartest" claims that MacDonald maximizes the utility function v(x,xo)- (a) Calculate the marginal utility with respect to junk news and orange according to each professor (as a function of xj and Xo) (b) Calculate MacDonald's MRS according to each professor ) For any budget constraint pjx Poxo-M, find the points of tangency with the indifference curve according to each professor (d) Find MacDonald's optimal consumption bundle according to each professor. Use this to conclude that Professors' debate was pointless

Answer 1

Solution:

Saluution Vfesso know all 2.nc D U 73 2 essor rou 3 2

lo Similar u ths cate SSOX (d) for Po Puting abere in budqet conshraint fn fo 3 P Since soRS Cons unplon bundle д olse same. Hence brok sor's debate wa bointless