Assignment 1

Assignment 1 - Name Student Number 220 203:03 Ilker Dastan...

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Unformatted text preview: Name: Student Number: 220: 203:03 Ilker Dastan INTERMEDIATE MICROECONOMICS ANALYSIS Spring 2008 Homework Assignment #1 03/10/08 Answer the questions in the spaces provided. If additional space is needed, please use the back of the page. Please show all your work. Each question is worth 1 point. 1) The utility that Julie receives by consuming food F and clothing C is given by U(F, C) = FC. For this utility function; a) On a graph with F on the horizontal axis and C on the vertical axis, draw indifference curves for U = 12, U = 18, and U = 24. b) Do the shapes of these indifference curves suggest that Julie has a diminishing marginal rate of substitution of food for clothing? Explain. c) Using the marginal utilities, show that the MRSF,C = C/F. What is the slope of the indifference curve U = 12 at the basket with 2 units of food and 6 units of clothing? What is the slope at the basket with 4 units of food and 3 units of clothing? Do the slopes of the indifference curves indicate that Julie has a diminishing marginal rate of substitution of food for clothing? 1 Name: Student Number: 2) Consider the utility function U(x, y) = xy + x. a) Is the assumption that more is better satisfied for both goods? b) Does the marginal utility of x diminish, remain constant, or increase as the consumer buys more x? Explain. c) What is MRSx,y ? d) Is MRSx,y diminishing, constant, or increasing as the consumer substitutes x for y along an indifference curve? e) On a graph with x on the horizontal axis and y on the vertical axis, draw a typical indifference curve (it need not be exactly to scale, but it needs to reflect accurately whether there is a diminishing, constant, or increasing MRSx,y). Also indicate on your graph whether the indifference curve will intersect either or both axes. Label the curve U1. On the same graph draw a second indifference curve U2, with U2 > U1. 2 ...
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