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Individual A has UA(XA,YA)=lnXA+2YA and has $500. PX=5 and PY =10.
(a) Find the optimum. Show that it is indeed the maximum.
(b) PX=10. Find the new optimum.
(c) Calculate the substitution and income effects in units of Y associated with this change in price.
(d) Graph your answers in (a), (b) and (c) on the same graph.
The entire market is capture by a single firm which can produce at a constant average and marginal cost of AC = MC = 10. The firm faces a market demand curve given by Q = 60 ? P.
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