Jezz Has the Quasi Log-Linear Utility Function

question 54

Essay

Jezz has the quasi log-linear utility function
U(q₁,q₂)= q₁ + 2ln(q₂)
Jezz has an income of $100 and faces prices p₁ = p₂ = 20.
a.What is the marginal rate of substitution for this utility function?
b.Solve for Jezz's optimal bundle.
c.Suppose Jezz's income falls to $20.What will happen to his optimal bundle?
Is the MRS = MRT at the optimal bundle?

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Definitions:

Plant Size

The capacity or physical extent of a manufacturing facility, including its machinery, layout, and workforce.

Economies of Scale

Competitive edge gained by firms through efficient production methods, leading to a reduction in the cost for each unit produced as the scale of production grows.

Natural Gas Pipeline

A system of pipes that transports natural gas from its source to the consumers or to a processing plant.

Diminishing Returns to Scale

A situation where, as more inputs are used, the incremental increase in output decreases.