Microeconomics

TA:
Course Coordinator: A. Banerji
Problem 1: Monotonic transformations
Suppose and are the amount consumed of two normal goods X and Y such
that and . If & V represent different utility functions. Check if V is a
monotonic transformation of U?

a.
b.
c. U = 10xy and V = 2x2y2

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Problem 2: Demand Functions
What will be the demand functions of goods X and Y for the below utility
functions?

• U(X, Y) = log(X) + log(Y)

• V(X, Y) = (XY)0.5

Will the demand functions be identical? Explain why?

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Problem 3: Optimal Consumption
Let U (X, Y) = (X + 2)(Y + 1) be the utility function of an individual, where X & Y are
normal goods. Answer the following:

a. What is the MRS of indifference curve?

b. How do the indifference curves look like? Do they follow well-behaved
preferences?
c. Assume that his income is INR 11 and price of x and y is one each. What will
be the optimal quantities consumed?

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Problem 4: Demand Functions
Suppose utility function is given by , where x and y are normal goods.

a. How will the indifference curve look like?

b. What will be the demand functions for x and y?