Question

Suppose when the price of Apples is $13, the price of Bananas is $15, and the...

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

Homework Answers

Answer #1

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

According to Utility maximizing condition we have:

MUx/Px = MUy/Py where MUx = Marginal utility of x and MUy = Marginal utility of y, Px = Price of Apple = 13 and Py = Price of Bananas = 15.

Thus we have : MUx/13 = MUy/15

=> MUx/MUy = 13/15 = 0.867

Slope of Indifference curve = - MRS(Marginal rate of substitution and as MRS = MUx/MUy

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

Hence, the correct answer is (a) -0.867

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