Let u(x₁, x₂) = 4x₁ + x₂ be the utility function. 1. Sketch the indifference curves corresponding to utility levels 2 and 4. Clearly label your graph. 2. What is the marginal rate of substitution for good 1 (state the unit of measurement)?

Let u(x₁, x₂) = 4x₁ + x₂ be the utility function. 1. Sketch the indifference curves corresponding to utility levels 2 and 4. Clearly label your graph. 2. What is the marginal rate of substitution for good 1 (state the unit of measurement)?

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Concept explainers

Marginal Rate of Technical Substitution

MRTS reaches a manufacturer when a part of the product is lowered to sustain the manufacturing level when the other part is extended. It is the level of the quantity that is lowered when one extra volume is used, and the output is unchanged.

Preferences and Utility Analysis

Before understanding what is preference and utility analysis, it is very important to understand the terms preference and utility separately.

Question

Let u(x₁, x₂) = 4x₁ + x₂ be the utility function.
2
1. Sketch the indifference curves corresponding to utility levels 2 and 4. Clearly label your
graph.
2. What is the marginal rate of substitution for good 1 (state the unit of measurement)?

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Step 1: Define indifference curve.

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Step 2: Draw the individual curve.

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Step 3: Calculate MRS.

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