Suppose Mary’s utility function for two goods X and Y is given by: U(X,Y) = 2X1/2Y1/2
Suppose consumption bundle A consists of 10 units of X and 10 units of Y, and consumption bundle B consists of 20 units of X and 5 units of Y.
Consumption bundle A lies on a higher/lower/same indifference curve than consumption bundle B. Show computations.
Computed Mary’s MRSxy at consumption bundle A. What does this number tell you?
If Mary chose consumption bundle B, her MRSxy would be a higher or lower? Please explain why.
Mary’s preference is transitive. Could two of Mary’s IC’s intersect? Please explain using a graph below.
If Px = $4, Py = $5, and Income I = $200, compute Mary’s utility maximizing consumption bundle. Show the utility maximizing consumption bundle on a graph.