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Unformatted text preview: A P = and 5 d A Q = . At point B, 5 B P = and 15 d B Q = . The choke price for this demand curve is a) 18.33 b) 27.5 c) 8.33 d) 0.67 Ans: B 3. Consider the utility function 2 ( , ) 3 5 U x y x y = + with 6 x MU x = and 5 y MU = . a) Is the assumption that more is better satisfied for both goods? b) What is , x y MRS for this utility function? c) Is the , x y MRS diminishing, constant, or increasing as the consumer substitutes x for y along an indifference curve? Ans: a) Yes as both MU X and MU Y are positive. That is, as consumption of the goods increases, utility increases too. b) , x y MRS = MU X /MU Y = 6x/5 c) Derivative of MRS XY with respect to x is 6/5, that is positive. That is, as x increases, MRS XY increases. That is, MRS XY is increasing as the consumer substitutes x for y along an indifference curve ....
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- Summer '10