# The expenditure Ec of a person with income I is given by Ec = (0.000035) I^2 + (0.045) I. Find marginal propensity to consume (MPC) and marginal propensity to save (MPS) when I = 5000. Also find A (average) PC and A (average) PS. - Mathematics and Statistics

The expenditure Ec of a person with income I is given by Ec = (0.000035) I2 + (0.045) I. Find marginal propensity to consume (MPC) and marginal propensity to save (MPS) when I = 5000. Also find A (average) PC and A (average)

PS.

#### Solution

E_c=(0.000035)I^2+(0.045)I

MP_c=(dE_c)/(dI)

=d/(dI)[(0.000035)I^2+(0.045)I]

=(0.000035)(2I)+(0.045)

=(0.00007)I+0.045

(MPC)_(I=5000)=(0.00007)(5000)+0.045

=0.395

We know

MPS=1-MPC

(MPS)_(I=5000)=1-(MPC)_(I=5000)

=1-0.395

=0.605

Now " "APC=E_c/I=((0.000035)^2+(0.045)I)/I

=(0.000035)I+(0.045)

(APC)_(I=5000)=(0.000035)(5000)+(0.045)

=0.175+0.045

=0.22

We have

(APS)=1-APC

(APS)_(I=5000)=1-(APC)_(I=5000)

=1-0.22

=0.78

Concept: Maxima and Minima
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2014-2015 (March)

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