Question

Do the following questions for each of the two situations below respectively, assuming well-behaved preferences:

(a) Graph two or more indifference curves. (Label clearly)

(b) Write an equation that could represent the utility function.

(c) For that utility function, what is the marginal utility for each good?

(d) What is the MRS? Do these preferences represent diminishing MRS?

Situation 1. I only eat strawberries. I can buy strawberries in a pint (P) or quart (Q); the strawberries are identical in either case, but a quart is the size of two pints.

Situation 2. I only spend time hiking (H) and sleeping (S). For every hour I hike I need three hours of sleep or that time hiking gives me no pleasure. Extra sleep (additional to that) doesn’t make me any happier. (MRS will be tricky here, try to describe it as clearly as you can but your notation need not be perfect.)

Answer 1

Answering only for scenario 1

A)IC