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2. Suppose that Daniel has utility function u(x, , X2 ) = In[3 + (x, + 2) x2]. (a) (0.75 p.) Why the following explanation
2. Suppose that Daniel has utility function u(x, , X2 ) = In[3 + (x, + 2) x2]. (a) (0.75 p.) Why the following explanation is incorrect? [You should indicate a mistake] 'Calculating MRS12 we get MRS12 = X2 / (x, + 2) . As we can see MRS , is diminishing when we move along Daniel's indifference curve since X2 / (X, +2) goes down as X, increases'. (b) (0.75 p.) Prove that MRS, is diminishing. Note: if in (b) you reproduce the mistake from (a) the overall score for (a)+(b) will be 0 (c) (1,5 p.) Find Daniel's demand for good 1
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