Answer Happy

Question 6: Consider a utility function u(x, y) = xay, where 0 < a < 1 and 0 < b < 1. Also assume that x, y > 0. 1. Derive the marginal utility of x and the marginal utility of y and state whether or not the assumption that more is better is satisfied for both goods. 2. Does the marginal utility of x diminish, remain constant, or increase as the consumer buys more x? What does it mean in words? 3. What is MRSxy? 4. Suppose a, b = . What is MRS at (x, y) = (3, 12) and what does it mean in words? What is (12, 3) and what does it mean in words? MRS at (x, y) = 5. Suppose a, b = . Draw two indifference curves of the utility function. To get full credit, draw one with the level of utility 2 and the other with the level of utility 3. For each indifference curve, label at least one point on the curve. 6. Draw tangent lines at (x, y) = (4, 16) and (x, y) = (16, 4) in the same graph and label the slopes you solved in MRS(4, 16) and MRS(16,4).