Question
Derek has utility for good 1 and good 2 given by u = x1=3 1 x1=3 2. (a) [2] What is Derek's Marginal Rate of
Derek has utility for good 1 and good 2 given by u = x1=3 1 x1=3 2. (a) [2] What is Derek's Marginal Rate of Substitution, dx2 dx1 ? (b) [2] When x1 = 2 and x2 = 8, how much of good 2 is Derek willing to give up to get 1 extra unit of good 1? (c) [2] When x1 = 8 and x2 = 1, how much of good 2 is Derek willing to give up to get 1 extra unit of good 1? (d) [2] Explain why the two rates in parts (b) and (c) are different. (e) [2] How are your answers to the above questions dierent for Derek's friend Joe, who has utility given by v = x2=3 1 x2=3 2? Page 5
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