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In: Economics

1. (4) Suppose that good1 and good 2 are perfect substitutes with indifference curves described by...

1. (4) Suppose that good1 and good 2 are perfect substitutes with indifference curves described by straight lines with a slope of -a. Given the prices and income P1, P2, and I, solve for the consumer’s optimal choices?

2. Show that each of the following utility functions has a diminishing MRS. Do they exhibit constant, increasing, or decreasing marginal utility? Is the shape of the marginal utility function an indicator of the convexity of indifference curve?
a. (2) U(X,Y) = XY
b. (2) U ( X , Y ) = X 2 Y 2
c. (2) U(X,Y) = ln X + ln Y

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Expert Solution

Rahul Sunny answered 2 years ago
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