Problem 1 a) Peter thinks that 4 units of good 1 is always a perfect substitute for 2 units of good 2. Then, utility function is U (2 1, 202) = 201 + 4xg- For instance, the bundles (4,0) and (0,2) give the same utility. b) Peter thinks that 4 units of good 1 is always a perfect complement for 2 units of good 2. Then, utility function is U(x1, x2) = min {2x1. 4x2}. For instance, bundle (4,2) is a kink bundle of the indifference curve for utility level 8. So (4,2) lies on the line from origin 2x1 = 4x2 that connects kinks of indifference curves. Remark 2 Do you know the following : and * =x1/2 Remark 3 Let f(21, x2) = y be a production function. Marginal products are MP = ., and MA =2, The firm has decreasing marginal products if of