II. Your preferences are represented by the utility function U(x₁, x₂) = (x² − x²)05 for x₁ > 0, x₂ > 0, and x² > x².

Microeconomics
13th Edition
ISBN:9781337617406
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter7: Consumer Choice: Maximizing Utility And Behavioral Economics
Section: Chapter Questions
Problem 3WNG
icon
Related questions
Question
II.
Your preferences are represented by the utility function U(x₁, x₂) = (x² − x²)0.5 for x₁ > 0, x₂ >
0, and x² > x².
Transcribed Image Text:II. Your preferences are represented by the utility function U(x₁, x₂) = (x² − x²)0.5 for x₁ > 0, x₂ > 0, and x² > x².
3. Find your marginal rate of substitution between good 1 and good 2. Simplify your answer.
4. Find and sign the derivative that determines what happens to your marginal rate of substitution
between the two goods as you consume more of good 1 and less of good 2 while keeping your
utility level constant. Simplify your answer. What does your result suggest?
5. Are your preferences homothetic? Why or why not?
Transcribed Image Text:3. Find your marginal rate of substitution between good 1 and good 2. Simplify your answer. 4. Find and sign the derivative that determines what happens to your marginal rate of substitution between the two goods as you consume more of good 1 and less of good 2 while keeping your utility level constant. Simplify your answer. What does your result suggest? 5. Are your preferences homothetic? Why or why not?
Expert Solution
steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Utility Maximization
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Microeconomics
Microeconomics
Economics
ISBN:
9781337617406
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Economics (MindTap Course List)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Economics For Today
Economics For Today
Economics
ISBN:
9781337613040
Author:
Tucker
Publisher:
Cengage Learning
Micro Economics For Today
Micro Economics For Today
Economics
ISBN:
9781337613064
Author:
Tucker, Irvin B.
Publisher:
Cengage,
Microeconomics A Contemporary Intro
Microeconomics A Contemporary Intro
Economics
ISBN:
9781285635101
Author:
MCEACHERN
Publisher:
Cengage