Suppose Bill has preferences over chocolate,x, and ice cream,y, that are represented by the Cobb-Douglas utility function
Question:
Suppose Bill has preferences over chocolate,x, and ice cream,y, that are represented by the
Cobb-Douglas utility function u(x, y) =x^2 y.
1. Write down two other Cobb-Douglas utility functions, besides the one above, that represent
Bill’s preferences.
2. Write down two more Cobb-Douglas utility functions that do NOT represent Bill’s prefer-
ences.
3. Draw 3 indifference curves that represents Bill’s preferences at 3 different levels of satsifaction.
4. What is Bill’s marginal rate of substitution between chocolate and ice cream? (Your answer
should be a function of x and y)
5. Suppose Bill is currently consuming the same quantity of chocolate and ice cream. What is
his marginal rate of substitution between chocolate and ice cream? Your answer should be a
number. Why? What does this number mean?
6. Would you say Bill is more of a chocolate fan or more of an ice cream fan? Why?
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba