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Suppose a consumer’s preferences for two goods, X and Y, can be described by a utility...

Suppose a consumer’s preferences for two goods, X and Y, can be described by a utility function which takes the form:U= min(XY) which simply means the consumer’s utility is equal to the smaller of either X or Y.Draw and explain a simple set of indifference curves representing these preferences.

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Answer #1

U = min(X, Y)

This represents a fixed-proportion utility function where X and Y are complements. The indifference curves are L-shaped and optimal bundle lies at the inflection point. In following graph, IC0, IC1 and IC2 represent the indifference map. The farther an indifference curve lies from the origin, the higher the total utility.

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