Consider a consumer with a utility function U(X,Y) = 4vX + vỸ a) Explain what marginal utility is. Compute marginal utilities of X and Y. b) Evaluate whether marginal utilities of X and Y are diminishing or not. c) Compute marginal rate of substitution. What is this consumer's marginal rate of substitution when she is consuming 4 units of X and 64 units of Y. d) Provide an interpretation of the value of MRS you found in part (c). e) Evaluate whether this consumer has diminishing marginal rate of substitution or not.
Consider a consumer with a utility function U(X,Y) = 4vX + vỸ a) Explain what marginal utility is. Compute marginal utilities of X and Y. b) Evaluate whether marginal utilities of X and Y are diminishing or not. c) Compute marginal rate of substitution. What is this consumer's marginal rate of substitution when she is consuming 4 units of X and 64 units of Y. d) Provide an interpretation of the value of MRS you found in part (c). e) Evaluate whether this consumer has diminishing marginal rate of substitution or not.
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.11P
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You can solve only d and e options or fully.
Transcribed Image Text:Consider a consumer with a utility function U(X,Y) = 4vX + VY
a) Explain what marginal utility is. Compute marginal utilities of X and Y.
b) Evaluate whether marginal utilities of X and Y are diminishing or not.
c) Compute marginal rate of substitution. What is this consumer's marginal
rate of substitution when she is consuming 4 units of X and 64 units of Y.
d) Provide an interpretation of the value of MRS you found in part (c).
e) Evaluate whether this consumer has diminishing marginal rate of
substitution or not.
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