Question

The utility that Julie receives by consuming food F and clothing C is given by U(F, C) = FC. For this utility function, the marginal utilities are MUF = C and MUC = F.

a) On a graph with F on the horizontal axis and C on the vertical axis, draw indifference curves for U = 12, U = 18, and U = 24.

b) Do the shapes of these indifference curves suggest that Julie has a diminishing marginal rate of substitution of food for clothing? Explain.

c) Using the marginal utilities, show that the MRSF,C = C/F. What is the slope of the indifference curve U = 12 at the basket with 2 units of food and 6 units of clothing? What is the slope at the basket with 4 units of food and 3 units of clothing? Do the slopes of the indifference curves indicate that Julie has a diminishing marginal rate of substitution of food for clothing? ( parts (b) and (c) are consistent!)

Answer 1

1.

2. If the indifference curve are convex to the origin, then the marginal rate of substitution would be decreasing as the more food she has, the minimum clothing she will give up to get more food. Julie will have constant marginal rate of substitution if she has linear indifference curve, which means she will give up food for clothing at the same rate regardless of how much food she has with her.

3. Hear the MRS will have negative slope. It is easy to calculate the slope by using two points (2,6) and (4,3) which is given in the question. You can say that, Julie has constant marginal rate of substitution if the slope is the same at the both point.