Ans_HW2

# Ans_HW2 - ) , ( y x is the , 1 x y MRS x = . At 4 = x , , 1...

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Answer to Practice Problem 2 3.14 0 5 10 15 20 25 0 10 20 30 40 X Y U 2 U 1 3.22 a) Yes, the “more is better” assumption is satisfied for both goods since both marginal utilities are always positive. b) The marginal utility of x increases as the consumer buys more x . c) , 1 1 1 x y x MRS x = = d) As the consumer substitutes x for y , the y x MRS , will diminish. e) Since it is possible to have U > 0 if either x = 0 (and y > 0) or y = 0 (and x > 0), the indifference curves intersect both axes.

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0 5 10 15 20 25 0 5 10 15 20 25 30 35 X Y U 2 U 1 f) The slope of a typical indifference curve at some basket
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Unformatted text preview: ) , ( y x is the , 1 x y MRS x = . At 4 = x , , 1 0.5 4 x y MRS = = . Note that this holds regardless of the value of y . Therefore, the slope of any indifference curve at 4 = x will be 0.5-. 3.24 3.21. First, the expression for MRS x,y is ( 29 x y y x y x MU MU MRS y x y x α-1 =-= =---1 1 1 , Since we know that MRS x,y = 4 when x = 4 and y = 8, 3 2 2 2 1 2 4 8 1 4 = =--=-=...
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## This note was uploaded on 01/30/2011 for the course 730 368 taught by Professor Bryant during the Spring '08 term at Rutgers.

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Ans_HW2 - ) , ( y x is the , 1 x y MRS x = . At 4 = x , , 1...

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