University of California, Davis
Department of Agricultural and Resource Economics
Instructor: Monticha
Sompolvorachai
ARE 100A
Winter 2009
Comments on Homework 2: Due Friday, January 23, 2009
100 points total: Problem 1: 15;
Problem 2: 10; Problem 3: 10;
Problem 4: 10; Problem 5: 25; Problem
6: 10; MC: 20 (2 points each)
Problem 1
: 3 points each. If you did not explain or had the wrong explanation, you only got 1 point. If
you explained partially, or your explanation was only partially correct, you got 2 points.
(b)
True, false, explain briefly
.
The downward slope of indifference curves is a consequence of
diminishing MRS
XY
.
A lot of people got this question wrong.
This can not be true since we have seen examples in class of
downward sloping indifference curves with nondiminishing MRS.
The increasing,
decreasing or constant nature of MRS explains the convexity of the indifference curve. It’s
sign determines whether the indifference curve is upward or downward sloping.
(c)
True, false, explain briefly
.
If the indifference curves are concave to the origin, then the optimal
consumption bundle occurs at a corner solution.
Here, so many of you simply restated the question. I needed to know that you understood
why
the
optimal bundle happens at the corner when the indifference curve is concave. It is because
any interior bundle is inferior to a bundle closer to the origin. Many of you provided the
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 Winter '08
 CONSTANTINE
 Utility, indifference curves

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