Question
1.Consider the utility functions U ( x , y ) = 3 x + y,U ( x , y ) = x 0.4 y 0.6.
1.Consider the utility functions U(x, y) = 3x + y,U(x, y) = x0.4y0.6. and U(x, y) = x2 + y2
a)Is the assumption that more is better satisfied for both goods?
b)Does the marginal utility of x diminish, remain constant, or increase as the consumer buys more x? Explain.
c)What is MRSx,y?
d)Is MRSx,y diminishing, constant, or increasing as the consumer substitutes x for y along an indifference curve?
e)On a graph with x on the horizontal axis and y on the vertical axis, draw a typical indifference curve (it need not be exactly to scale, but it needs to reflect accurately whether there is a diminishing MRSx,y). Also indicate on your graph whether the indifference curve will intersect either or both axes. Label the curve U1.
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