Question

Suppose that a consumer gains utility from apples and bananas according to the utility function: U(A,B)=A^2...

Suppose that a consumer gains utility from apples and bananas according to the utility function: U(A,B)=A^2 ×B

a)Suppose A = 2 and B = 1. What is the marginal utility of each good?
b)For the consumer’s utility, how valuable are apples relative to bananas? That is, what is the MRS?

c)Suppose PA = 2 and PB = 1. How valuable are apples relative to bananas in the marketplace? That is, what is the price ratio?

d)Suppose A = 2, B = 1, PA = 2, and PB = 1. Which good provides the consumer with more utility per dollar? How should the consumer change consumption from the current levels?

e)On a graph, draw an indifference curve for a utility level of Ū = 16. Use at least 4 different consumption bundles.

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