Determine preference of consumer.
Explanation of Solution
The principle of declining MRS (marginal rate of substitution) implies that the consumer’s indifference curve are convex to the origin. In this case, the consumption bundle C lies between the consumption bundles A and B. It can be connected through a straight line. That means, C lies above the indifference curve that contains the consumption bundles A and B. Hence, C prefers both A and B. Thus, the answer is that consumer prefer C to A and B.
Indifference curve: The indifference curve is a mathematical representation of the combination of all of the consumption bundles that provide a consumer with the same utility.
Marginal rate of substitution (MRS): The MRS is the slope of the indifference curve, which measures the willingness of a consumer to trade one good for the other.
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