13. Suppose you can only consume nonnegative units of Good X and Good Y. Your ut

Question

13. Suppose you can only consume nonnegative units of Good X and Good Y. Your utility In(ry) where In() is the natural logarithm operator. Which of function is U(x, y) the following statement is NOT true? aThe marginal utility of Good X may be postive or negative (depending on the sign of x and y) Ob.The marginal utility of Good Y cannot be negative. OG The marginal utlity of Good X does not depend on the quantity of Y consumed. Od.The marginal utility of Good Y does not depend on the quarty of X consumed. QUESTION 14 14. Andy uses his entire budget to purchase Goods X and Y. Now he spends all his wealth on Good Y. The price of Good X is 1 and that of Good Y is 2. His marginal utility from Good X is 2 and that of Good Y is 6. Is his current consumption decision optimal? Oa No, he should increase Good X consumption and reduce Good Y consumption Ob. No, he should increase Good Y consumption and reduce Good X consumption OYes, the comer solution is best. d.We do not have enough information to answer this question

Explanation / Answer

Ans 13)

Natural Logarithm is with base of Log (exp) then if U(x,y)=Z therefore xy=exp(z)

Similarly Marginal Utility is dU/dX=y/x and dU/dY=x/y as both x and y are non negative therefore Marginal utilities cannot be negative

option 2 is correct response

Ans 14)

To find the optimality one condition should always meet amd that is MUx/MUy=Px/Py but in our case

2/6<1/2 that is MUx/Px<MUy/Py...2<3 Hence Marginal utility from consumption of Y is grater than consumption of X therefore he should increase the consumption of Y and reduce the consumption of X

Untill MRS=Px/Py Equilibrium or optimum solution cant be met

Option B is correct

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