In each case, answer whether the preferences are definitely transitive, definitely not, or not enough information....

In each case, answer whether the preferences are definitely transitive, definitely not, or not enough information. Explain your answer. Also do the same for monotonicity.

A. Please answer this part only for monotonicity. J has a utility function u(A,B) = A x B. Hint: Something important is happening in bundles involving 0 A's or 0 B's.

B. Please Answer this part only for monotonicity. J compares any two bundles (A1, B1) to (A2,B2) by the following procedure. If the bundles have different numbers of A's, she chooses the bundle with more A's. If they have the same number of A's and different number of B's, she chooses the bundle with more B's. If they have the same number of A's and the same number of B's is she indifferent?

C. Please answer this part for both. J compares any two bundles (A1, B1) to (A2,B2) by the following procedure. She calculates A/B (A divided by B) and chooses the bundle with the higher value. Technical note: assume that B>0 so we don't have to worry about dividing by zero.

Solutions

Expert Solution

Transitivity assumption is when consumer prefers A bundle to B and B bundle to C that implies he prefers A bundle to C. This assumption implies that individual's choices are internally consistent.

Monotonic preferences means more is always better that is consumer always chooses a bundle which has more of both goods and this gives him higher utility.

A) if we choose a bundle between( 5,0) and (7,0) we will choose a bundle with higher good A but both the bundles yeild same utility as

(5,0) will yield zero utity so as (7,0) will do. Whereas, (7,7) will naturally give more utility than (5,5). So , it is definitely not monotonic.

B) Definitely monotonic, he always chooses the bundle which has more A if number of Bs are same, he chooses the bundle with more B if number of As are same and indifferent if both A and B have same numbers.

C)Refer to the image for this part.

Rahul Sunny answered 1 year ago

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