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ARE100AW09HW2Comments-1 - 1 University of California Davis...

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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 non-diminishing 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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