Suppose preferences are monotonic and strictly convex. If the MRS at the point (6,15) = -9,...

Suppose preferences are monotonic and strictly convex. If the MRS at the point (6,15) = -9, what could be a possible MRS on the same IDC at the point (11,11)? Recall that a negative slope becomes flatter when it is closer to 0.

Solutions

Expert Solution

Answer: Given that the preferences are monotonic and strictly convex we know that the indifference curve for an individual will be convex to the origin. Now we know that the slope of the indifference curve is the marginal rate of substitution. When the preferences are strictly convex, the slope along the indifference curve decreases as the quantity of X increases relative to the quantity of Y.

Here according to the question the MRS at point A (6,15) is equal to -9. The negative sign here shows the diminishing marginal rate of substitution. Now when we move to point B such as (11,11) the quantity of X has increased and Y has fallen. As a result the slope of the indifference curve at point B becomes flatter. This means that the MRS at the point (11,11) will be any value less than -9. So a possible MRS at point (11,11) could be -5.

Note: Here we just look at the absolute values of the MRS. Negative sign just represents that the slope is declining along the indifference curve.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

If consumer has rational. monotonic and convex preferences, which of the following is true concerning the...

If consumer has rational. monotonic and convex preferences, which of the following is true concerning the substitution effect of a decrease in price of good X. A) It always will lead to an increase in consumption of good X. B) It will lead to an increase in consumption of good X only if X is a Giffen good. C) It will lead to an increase in consumption of good X only if X is an inferior good. D) It will...

1. Erika has preferences that are complete, transitive, continuous, monotonic, and convex. Her utility function is...

1. Erika has preferences that are complete, transitive, continuous, monotonic, and convex. Her utility function is U(x1, x2), where goods 1 and 2 are the only goods she values. Her income is M, and the prices of the goods are p1 and p2; assume M, p1 and p2 are positive numbers. a. Suppose M decreases, good 1 is normal, and good 2 is inferior. Using a graph, show what happens to the demand for each good. b. Is it possible...

Firms usually have isoquants that are strictly convex. This is because of a. the limited supply...

Firms usually have isoquants that are strictly convex. This is because of a. the limited supply of an input. b. decreasing returns to scale. c. the law of diminishing returns. d. the law of diminishing marginal rates of technical substitution

Ray spends his entire budget on bread and gasoline. His preferences are complete, transitive, monotonic and...

Ray spends his entire budget on bread and gasoline. His preferences are complete, transitive, monotonic and convex. For Ray, bread is an inferior good that follows the law of demand. Moreover, the cross-price elasticity of demand for gasoline with respect to the price of bread is negative. Suppose the price of bread increases, all else constant. Graphically decompose the total effect of the price increase into the substitution and income effects on a well annotated graph. Be sure to clearly...

For each of the following utility functions, explain whether the preferences that they represent are strictly...

For each of the following utility functions, explain whether the preferences that they represent are strictly convex. Use indifference curve diagrams to help explain your answers. 1. Preferences represented by u (x1, x2) = x1 + x2. 2. Preferences, represented by u (x1, x2) = min {x1, x2}.

let S in Rn be convex set. show that u point in S is extreme point...

let S in Rn be convex set. show that u point in S is extreme point of S if and only if u is not convex combination of other points of S.

give a four-point example P that has both maximal point not on the convex hull and...

give a four-point example P that has both maximal point not on the convex hull and a convex hull point is not maximal

I What does it mean that preferences are reflexive, complete andtransitive?ii What characterises convex...

I What does it mean that preferences are reflexive, complete and transitive?ii What characterises convex preferences?iii Explain what the assumption of monotonicity of preferences imply.vi If the five properties above (reflexive, complete transitive, convexity and monotonicity) are satisfied, preferences are said to be “well-behaved”. Explain, which of these properties that make sure that:i.indifference curves cannot slope upwards, ii.indifference curves (for an individual) cannot cross each other, iii.indifference curves are bowed into the origin.

Draw a convex quadrilateral ABCD, where the diagonals intersect at point M. Prove: If ABCD is...

Draw a convex quadrilateral ABCD, where the diagonals intersect at point M. Prove: If ABCD is a parallelogram, then M is the midpoint of each diagonal.

Express the point (10,20) as a convex combination of (0,0), (0,40), (20,20) and (30,30). Please explain...

Express the point (10,20) as a convex combination of (0,0), (0,40), (20,20) and (30,30). Please explain the "algorithm" on how to solve this type of problem.

Subjects