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ch03 - Chapter 3 Preferences and Utility Solutions to...

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7. Utility Hamburgers Slope of this line measures marginal utility at this level of consumption, H’ H’ Total Utility Marginal utility would be measured as the slope of a line tangent to the total utility curve in the graph above. 8. The two cannot be plotted on the same graph because utility and marginal utility are not measured in the same dimensions. Total utility has the dimension U , while marginal utility has the dimension of utility per unit, or y U / where y is the number of units purchased. 9. a) Yes, we can determine the MRS as f h f h MU MU MRS = , b) No, when we know the MRS, all we know is the ratio of the marginal utilities. We cannot “undo” that ratio to determine the individual marginal utilities. For example, if we know that MRS h,f = 5, it could be the case that MU h = 5 and MU f = 1, but it could equivalently be the case that MU h = 10 and MU f = 2. Clearly, there are countless combinations of MU h and MU f that could lead to some particular value of MRS h,f , and we have no way of inferring which is the right one. 10. a) C H C H MU MU MRS = , Page 3 - 2
b) C H The indifference curve in this case will be convex toward the origin. The marginal rate of substitution is measured as the absolute value of the slope of a line tangent to the indifference curve. As can be seen in the graph

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ch03 - Chapter 3 Preferences and Utility Solutions to...

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