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Problem Set 2 - Solutions

# Problem Set 2 - Solutions - ECON 301 Problem Set 2...

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ECON – 301 Problem Set 2 – Solutions 1) First, the expression for MRS x,y is   x y y x y x y MU x y x MRS 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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ECON – 301 2) a. , 1/(2 ) ) H HM M MU H M MRS MU MH This utility function has a diminishing marginal rate of substitution since MRS H,M declines as H increases and M decreases. b. 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 0 5 10 15 20 25 30 35 M H U 1 U 2 Since it is possible to have U > 0 if either H = 0 (and M > 0) or M = 0 (and H > 0), the indifference curves will
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Problem Set 2 - Solutions - ECON 301 Problem Set 2...

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