Assume that a consumer has a utility function of the following form: where x, = quantity of $5 bill and x, quantity of $1 bills. Note that $5 bills and S1 bills are perfect %3D !! substitutes. Solve for this consumer's indifference curve (IC) at u = 10 and u 20. Plot at least two points on each curve. Be sure to include the function that solves for each IC. 3pt What is the marginal rate of substitution of $1 bills for $5 bills (MRS,-x,) for each curve? Does it diminish with increases in x,? Explain why or why not. 3pt
Assume that a consumer has a utility function of the following form: where x, = quantity of $5 bill and x, quantity of $1 bills. Note that $5 bills and S1 bills are perfect %3D !! substitutes. Solve for this consumer's indifference curve (IC) at u = 10 and u 20. Plot at least two points on each curve. Be sure to include the function that solves for each IC. 3pt What is the marginal rate of substitution of $1 bills for $5 bills (MRS,-x,) for each curve? Does it diminish with increases in x,? Explain why or why not. 3pt
Chapter10: Consumer Choice Theory
Section: Chapter Questions
Problem 6P
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