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Unformatted text preview: Exercise 5 1. The slope of the indierence curve = −M RS
−M RS = − M U x1 12 =− = −2 M U x2 6 2.
(4 + 2)(6 + 6) = 72 (x1 + 2)(6) = 72 =⇒ x1 = 10 (7 + 2)(x2 + 6) = 72 =⇒ x2 = 2 (2 + 2)(x2 + 6) = 72 =⇒ x2 = 12 3. (1,15) u(1, 15) = 3 × 21 = 63 < 72 Not trading is a wise decision 4. ... my marginal utility of milk falls the more milk you give me. This makes my MRS go down (become more negative), and so you need to give me more and more milk for each cookie.
u(3, 9) = 5 × 15 = 75 > 72 Burt would like to give up 1 cookie for 3 glasses of milk.
u(2, 12) = 4 × 18 = 72 = 72 Burt would be indierent to giving up 2 cookies for 6 glasses of milk. 1 ...
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This note was uploaded on 11/07/2010 for the course ECO 33358 taught by Professor Mathevet during the Fall '10 term at University of Texas at Austin.
 Fall '10
 Mathevet

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