Math Economics Assignment Example | Topics and Well Written Essays - 500 words

Math Economics - Assignment Example If the price of a close substitute—a product that you view as similar or identical to the one you are considering purchasing—is much lower than the price of Levi’s jeans, you may buy that other brand instead. The price of a complement, , -a good that you like to consume at the same time as the product you are considering buying—may affect your decision. If you eat pie only with ice cream, the higher the price of ice cream, the less likely you are to buy pie 3. Consider a profit maximizing firm which rents capital K at rate R in order to produce goods q via the production function . Assume the firm takes the goods price as given. If determine the firm’s demand for capital. Compute the marginal rate of substitution (MRS) between goods x and y. Compute an equation characterizing the agent’s indifference curve, and compute the slope of this curve. Compare this slope to the MRS. Use the MRS to compute the demand curves for x and y. Are the goods x and y complements? Substitutes? Now that we have the marginal rate of substitution, we can find out what happens to the relative consumption of X and Y as we move along the consumer’s indifference curve. To see what occurs as X increases, we take the partial derivative of MRS XY with respect to X: The consumer’s marginal rate of substitution — the slope of the indifference curve — remains the same as her consumption of X increases or decreases along the indifference curve. In other words, the consumption of commodity X has no any direct effect on consumption of commodity Y. thus the goods are not substitute but are compliments to each