*7. A consumer’s utility function is given by U = XY, where M U X = Y and M U Y = X.

a. What is the utility derived from 1 unit of X and 2 units of Y ? What is the utility derived from 2 units of X and 1 unit of Y ? What is the utility derived from 5 units of X and 2 units of Y ?

b. How does the consumer rank the following bundles?

c. Graph an indifference curve that shows the bundles of X and Y for which U = 6 and U = 8. Is the “more is better” assumption satisfied for X and Y ?

d. What are M U X and M U Y for the following bundles?

e. Does MU X diminish, stay constant, or increase as X increases? (Hint: You must keep the values of all other variables fixed.)

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Quantity Quantity Bundle of X of Y A 2 2 B 10 0 C 1 5 D 3 2 E 2 3