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* * Examples of Corner Solutions -- the Perfect Substitutes Case x1 x2 MRS = -1 Slope = -p1/p2 with p1 = p2. * * Examples of Corner Solutions -- the Perfect Substitutes Case x1 x2 All the bundles in the constraint are equally the most preferred affordable when p1 = p2. * * Examples of Corner Solutions -- the Non-Convex Preferences Case x1 x2 Better * * Examples of Corner Solutions -- the Non-Convex Preferences Case x1 x2 * * Examples of Corner Solutions -- the Non-Convex Preferences Case x1 x2 Which is the most preferredaffordable bundle? * * Examples of Corner Solutions -- the Non-Convex Preferences Case x1 x2 The most preferredaffordable bundle * * Examples of Corner Solutions -- the Non-Convex Preferences Case x1 x2 The most preferredaffordable bundle Notice that the “tangency solution”is not the most preferred affordablebundle. * * Examples of ‘Kinky’ Solutions -- the Perfect Complements Case x1 x2 U(x1,x2) = min{ax1,x2} x2 = ax1 * * Examples of ‘Kinky’ Solutions -- the Perfect Complements Case x1 x2 MRS = - ￥ MRS = 0 MRS is undefined U(x1,x2) = min{ax1,x2} x2 = ax1 * * Examples of ‘Kinky’ Solutions -- the Perfect Complements Case x1 x2 U(x1,x2) = min{ax1,x2} x2 = ax1 * * Examples of ‘Kinky’ Solutions -- the Perfect Complements Case x1 x2 U(x1,x2) = min{ax1,x2} x2 = ax1 Which is the mostpreferred affordable bundle? * * Examples of ‘Kinky’ Solutions -- the Perfect Complements Case x1 x2 U(x1,x2) = min{ax1,x2} x2 = ax1 The most preferred affordable bundle * * Examples of ‘Kinky’ Solutions -- the Perfect Complements Case x1 x2 U(x1,x2) = min{ax1,x2} x2 = ax1 x1* x2* (a) p1x1* + p2x2* = m * * Examples of ‘Kinky’ Solutions -- the Perfect Complements Case x1 x2 U(x1,x2) = min{ax1,x2} x2 = ax1 x1* x2* (a) p1x1* + p2x2* = m(b) x2* = ax1* * * Examples of ‘Kinky’ Solutions -- the Perfect Complements Case (a) p1x1* + p2x2* = m; (b) x2* = ax1*. Substitution from (b) for x2* in (a) gives p1x1* + p2ax1* = mwhich gives * * Examples of ‘Kinky’ Solutions