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Let there be two goods; coco puffs and grits. Assume that the preferences satisfy basic axioms...

Let there be two goods; coco puffs and grits. Assume that the preferences satisfy basic axioms and assumptions and they can be represented by the utility function u(x1,x2)= x1x2.

Consider two bundles X= (1,20) and Y=(10,2). Which one do you prefer?
Use bundles X and Y to illustrate that these tastes are in fact convex.
What is the MRS at bundles X and Y respectively?
Now consider tastes that are instead defined by the function u(x1,x2) = x1^2 + x2^2 What is the MRS of this function?
Do these tastes have diminishing marginal rates of substitution? Are they convex? Explain your answers
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Answer #1

The consumer will be indifferent in the First case.

Sorry for the bad handwriting. Bear with it please.

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