Question

Suppose when the price of Apples is $13, the price of Bananas is $15, and the budget is $390. If Apples are on the x-axis and Bananas are on the y-axis, what is the slope of the Indifference Curve at the Utility Maximizing point?

Group of answer choices

−0.867

−1.15

−2

Not enough information to determine

Answer 1

Let Apples be represented by x and Bananas be represented by y

According to Utility maximizing condition we have:

MU_x/P_x = MU_y/P_y where MU_x = Marginal utility of x and MU_y = Marginal utility of y, P_x = Price of Apple = 13 and P_y = Price of Bananas = 15.

Thus we have : MU_x/13 = MU_y/15

=> MU_x/MU_y = 13/15 = 0.867

Slope of Indifference curve = - MRS(Marginal rate of substitution and as MRS = MU_x/MU_y

=> Slope of Indifference curve = -MU_x/MU_y = -0.867(Negative sign means that indifference curve is downward sloping)

Hence, the correct answer is (a) -0.867