Assume the consumer's preference ranking satisfies completeness, transitivity, continuity and monotonicity. To determine whether preferences are...

 

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Assume the consumer's preference ranking satisfies completeness, transitivity, continuity and monotonicity. To determine whether preferences are consistent with the hypothesis of diminishing marginal rates of substitution (MRS), we examine what happens to the absolute value of the MRS as we move to the south-east along an indifference curve (increasing x and decreasing x2). If the absolute value of the MRS falls, then the consumer's preferences are consistent with diminishing MRS. Suppose a consumer's preferences over x1 and x2 can be represented by the utility function U(X 1,X 2) = 6x1 X2. Are these preferences consistent with the hypothesis of diminishing MRS? Assume the consumer's preference ranking satisfies completeness, transitivity, continuity and monotonicity. To determine whether preferences are consistent with the hypothesis of diminishing marginal rates of substitution (MRS), we examine what happens to the absolute value of the MRS as we move to the south-east along an indifference curve (increasing x and decreasing x2). If the absolute value of the MRS falls, then the consumer's preferences are consistent with diminishing MRS. Suppose a consumer's preferences over x1 and x2 can be represented by the utility function U(X 1,X 2) = 6x1 X2. Are these preferences consistent with the hypothesis of diminishing MRS?