2 COLD BREW VS. ICED COFFEE Lauren's preferences over cold brew, C, and iced coffee, I, are given by the following utility function: U(C, I)=C+I a. Plot indifference curves associated with U = 5, U = 10, and U = 15. b. Calculate Lauren's marginal rate of substitution (MRS) at the bundles (C=3,I=1) and (C=1,I=3). What does this imply about Lauren's preferences in words?
2 COLD BREW VS. ICED COFFEE Lauren's preferences over cold brew, C, and iced coffee, I, are given by the following utility function: U(C, I)=C+I a. Plot indifference curves associated with U = 5, U = 10, and U = 15. b. Calculate Lauren's marginal rate of substitution (MRS) at the bundles (C=3,I=1) and (C=1,I=3). What does this imply about Lauren's preferences in words?
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.4P
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Question B please. I’m confused how to find the MRS and how to plug in the formula
Transcribed Image Text:2 COLD BREW VS. ICED COFFEE
Lauren's preferences over cold brew, C, and iced coffee, I, are given by the following utility
function:
U(C, I)=C+I
a. Plot indifference curves associated with U = 5, U = 10, and U = 15.
b. Calculate Lauren's marginal rate of substitution (MRS) at the bundles (C=3,1=1) and (C=1,I=3).
What does this imply about Lauren's preferences in words?
c. Suppose Lauren's brother Christopher has preferences over cold brew and iced coffee that
is given by the following utility function:
U(C, I)=√C+I
Redo parts (a) and (b) using Christopher's utility function. What changes, if anything? Ex-
plain.
Expert Solution
Step 1
Since only the answer for part B is asked, we will only solve one subpart for you. If you want solutions for any other questions, please submit a separate request.
Marginal rate of substitution:
MRS determines the rate at which an individual substitutes one good for the consumption of one extra unit of another good.
Say, there are two commodities- X and Y
Therefore, the amount of Y sacrificed for one additional unit of X is the MRS of X for Y.
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