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Economics 4808
Problem Set 4
1.
Consider the utility function
U
(
x
,
y
) = 3
x
+
y
.
a.
Calculate the marginal utility of
x
(
MU
x
) and the marginal utility of
y
(
MU
y
).
b.
Is the assumption that more is better satisfied for both goods?
Relate your answer to the marginal
utilities calculated in part a.
c.
Does the marginal utility of
x
diminish, remain constant, or increase as the consumer buys more
x
?
2.
Suppose a consumer’s preferences for two goods can be represented by the CobbDouglas utility
function
U
(
x
,
y
) =
A
x
α
y
β
, where
A
,
, and
are positive constants.
a.
What is
MRS
x
,
y
?
b.
Is
MRS
x
,
y
diminishing, constant, or increasing as the consumer substitutes
x
for
y
along an
indifference curve?
c.
On a graph with
x
on the horizontal axis and
y
on the vertical axis, draw a typical indifference
curve.
Indicate on your graph whether the indifference curve will intersect either or both axes.
3.
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 '06
 EDWARDMOREY
 Economics, Utility

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