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(answered) – 1. Max enjoys windsurfing and snorkelling. Max has $35 a day toDescriptionSolution downloadThe Question1. Max enjoys windsurfing and snorkelling. Max has $35 a day to spend, and he can spend as much time as he likes on his leisure pursuits. The price of renting equipment for windsurfing is $10 an hour and for snorkelling is $5 an hour. The table shows the total utility Max gets from each activity.PROBLEM SET #2ECONOMICS 201October 20151. Max enjoys windsurfing and snorkelling. Max has $35 a day to spend, and he can spendas much time as he likes on his leisure pursuits. The price of renting equipment forwindsurfing is $10 an hour and for snorkelling is $5 an hour. The table shows the totalutility Max gets from each activity.Hour Total utilityTotals perfromutilitydaywindsurfinfroma. Calculate Max?s marginal utility and marginal utilitygsnorkellinper dollar from windsurfing at each number ofghours per day.000b. Calculate Max?s marginal utility and marginal112040utility per dollar from snorkelling at each222076number of hours per day3300106c. Does Max?s marginal utility from windsurfing4360128and snorkelling obey the principle of diminishing5396140marginal returns?6412150d. What is Max?s total utility from enjoying 2 hours7422158of windsurfing and 3 hours of snorkelling? Is this Max?s optimal allocation of his timebetween windsurfing and snorkelling? If not, what is?2. Ordinary Goods.Let U(X, Y) = 2 X1/3 Y2/3, MUx = (2/3) X-2/3 Y2/3, MUy = (4/3) X1/3 Y-1/3, Px = 3, Py = 6, and M =120.a. What is the equation for the budget line?b. What is the marginal rate of substitution?c. What is the relative price or the slope of the budget line?d. What is the optimal relationship between X and Y?e. What is the equilibrium levels of X, Y, and U? Denote this point as A on the graph.Suppose now Px increases to 6.f. What is the equation for the new budget line?g. What is the marginal rate of substitution?h. What is the new relative price or the slope of the new budget line?i. What is the new equilibrium levels of X, Y, and U? Denote this point as C on thesame graph.j. Determine point B, where the individual is hypothetically given more income tocompensate for the change in price levels, but is consuming the same utility aspoint A. (Hint: use the optimal relationship with the new price level and substitute itinto the utility of the initial equilibrium.)k. Clearly illustrate point A, B, and C on the graph and accurately label everything.l. What is the Substitution Effect on X and Y with the increase of P x?m. What is the Income Effect on X and Y with the increase of P x?n. What is the Total Effect on X and Y with the increase of P x?o. Are goods X and Y normal goods or inferior goods?3. Perfect Complements.Let U(X, Y) = min{ 2X, 3Y + 1 }, Px = 5, Py = 10, and M = 100.a. What is the optimal relationship between X and Y?b. What is the equilibrium levels of X, Y, and U? Denote this point as A on the graph.Suppose now Px increases to 10.c. What is the optimal relationship between X and Y?d. What is the new equilibrium levels of X, Y, and U? Denote this point as B on thegraph.e. Clearly illustrate point A and B on the graph and accurately label everything.4. Perfect Substitutes.Let U(X, Y) = 3X + (1/3) Y, Px = 5, Py = 10, and M = 100.a. What is the slope of the indifference curves?b. What is the slope of the budget line?c. What is the equilibrium levels of X, Y, and U? Denote this point as A on the graph.Suppose now Px increases to 10.d. What is the slope of the indifference curve?e. What is the slope of the new budget line?f. What is the equilibrium leve

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