Dobby thinks that one 16 oz can of beer is as good as two 8 oz cans of beer. The utility function that represents Dobby’s preference is given as U (x1, x2) = x1 + 2x2 where x1 is 8 oz cans and x2 is 16 oz cans. (a) Draw Dobby’s indifference curves at the levels U = 2, U = 4, U = 8. Indicate at least 2 points (bundles) in each indifference curve. (b) Is Dobby’s preference convex? monotonic? (c) Find the marginal utility of 8 oz cans. Find the marginal utility of 16 oz cans. Find the marginal rate of substitution. (d) Suppose that Dobby’s utility function can be represented as U1(x1, x2) = 2x1 + 4x2. Draw Dobby’s indifference curves at the levels U1 = 4, U1 = 8, U1 = 16. Indicate at least 2 points (bundles) in each indifference curve. Are these indifference curves identical those in to part (a)? (e) Find the marginal utility of 8 oz cans. Find the marginal utility of 16 oz cans. Find the marginal rate of substitution. Are they identical to those in part (c)? Do U (x1, x2) and U1(x1, x2) represent the same preference? Why?

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a To draw Dobbys indifference curves at the levels U 2 U 4 and U 8 we can use the utility function Ux1 x2 x1 2x2 At U 2 Substituting U 2 into the util... View the full answer