Assume that there are two goods in the world: apples and bananas. Say that Natalie has a ility function for these goods of the following type, where xA denotes the quantity of apples d xB the quantity of bananas U(XA, XB) = XA XB- o the following: a) Draw the indifference curves that are defined by the utility function (2-3 curves). Make sure to include an indifference curve that is defined by a utility level of 2,500. b) What is the marg inal rate of substitution when Natalie consumes 50 apples and 50 bananas? What is the marginal rate of substitution between these two goods when Natalie consumes
Assume that there are two goods in the world: apples and bananas. Say that Natalie has a ility function for these goods of the following type, where xA denotes the quantity of apples d xB the quantity of bananas U(XA, XB) = XA XB- o the following: a) Draw the indifference curves that are defined by the utility function (2-3 curves). Make sure to include an indifference curve that is defined by a utility level of 2,500. b) What is the marg inal rate of substitution when Natalie consumes 50 apples and 50 bananas? What is the marginal rate of substitution between these two goods when Natalie consumes
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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How to answer A, B, C and D?
Transcribed Image Text:Assume that there are two goods in the world: apples and bananas. Say that Natalie has a
utility function for these goods of the following type, where xA denotes the quantity of apples
and xB the quantity of bananas
U(XA, XB) = XA XB-
Do the following:
a) Draw the indifference curves that are defined by the utility function (2-3 curves). Make
sure to include an indifference curve that is defined by a utility level of 2,500.
b) What is the marg inal rate of substitution when Natalie consumes 50 apples and 50 bananas?
What is the marginal rate of substitution between these two goods when Natalie consumes
50apples and 100 bananas?
c) If the unit prices of the apples and the bananas are 3 EUR and 4 EUR, respectively, what
bundle of apples and bananas would Natalie buy with her income of 100 EUR?
d) Previous exam question: Sarah's utility function is given by
U(x1, x2)
= x1 x
Her budget is 72. The price for good 1 is 4 and the price for good 2 is 12. Which amounts
of good 1 and good 2 will she buy?
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