Q3:

a) Often, we assume that consumers have diminishing MRS. Explain what that means and how it is reflected in indifference curves.

b) Can you draw an indifference curve that does not have diminishing MRS, but that is still allowed?

Q4:

If the Prices for laptops are described by the following price equation:

Ln P = 7 +.35 Ln(D) +.3 Ln(B) -.25 Ln(W),

where P is price in dollars, D is the size of hard disk in gigabytes, B is the battery life in hours, and W is the weight of the laptop in pounds. Your current product has a 10Gb hard disk, battery life of 2 hours, and a weight of 5 pounds. It sells for $2000.

If you modify the laptop to include an improved battery, the battery life would increase to 3 hours, but the weight would also increase to 6 pounds.By how much percentage the laptop's price would increase?What is the new price?