Question
Suppose a consumer has preferences over two goods that can be represented by the quasi-linear utility function U ( x , y )=2 x +
Suppose a consumer has preferences over two goods that can be represented by the quasi-linear utility functionU(x,y)=2x+y. The marginal utilities areMUx=1/xandMUy=1.a) Is the assumption that more is better satisfied for both goods?b) Does the marginal utility ofxdiminish, remain constant, or increase as the consumer buysmorex? Explain.c) What is the expression forMRSx,y?d) Is theMRSx,ydiminishing, constant, or increasing as the consumer substitutes morexforyalong an indifference curve?e) On a graph withxon the horizontal axis andyon the vertical axis, draw a typical indifferencecurve (it need not be exactly to scale, but it should accurately reflect whether there is adiminishingMRSx,y). Indicate on your graph whether the indifference curve will intersect eitheror both axes.f) Show that the slope of every indifference curve will be the same whenx=4. What is the valueof that slope
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