1-a John's preferences are represented by Cobb Douglas utility function U = qiqa with a =...
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1-a John's preferences are represented by Cobb Douglas utility function U = qiqa with a = 0.8. Answer the following questions. (a) Show that the given utility function exhibits the law of diminishing marginal utility. (b) What is the trade-off between the two goods John is willing take when he is currently consuming 5 of good 1 and 2 of good 2. In other words, find John's MRS at the bundle (5,2). (c) What about MRS at the bundle (2,4)? (d) Visualize your answers in parts (b) and (c) in one same diagram. 1-a John's preferences are represented by Cobb Douglas utility function U = qiqa with a = 0.8. Answer the following questions. (a) Show that the given utility function exhibits the law of diminishing marginal utility. (b) What is the trade-off between the two goods John is willing take when he is currently consuming 5 of good 1 and 2 of good 2. In other words, find John's MRS at the bundle (5,2). (c) What about MRS at the bundle (2,4)? (d) Visualize your answers in parts (b) and (c) in one same diagram.
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Ans a U q1 08 q2 02 MUq1 dUdq1 08q1 02 q2 02 dMUdq1 2 0802q1 ... View the full answer
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