Question

4. Suppose that a consumer has utility function UGx axy. What is the marginal rate of substitution of X for Y? A) 1oyx3 C) 2x/5y , y) with MUx sy'x and MUy B) 5y/2x s. Identify the truthfulness of the following statements. I. When the marginal product of labor is alling, the average product of labor is alling. Il. When the marginal product curve lies above the average product curve, then average product is rising. A) Both I and II are true. C) I is true; II is false. B) Both I and II are false. D) I is false; II is true.

Answer 1

4. Marginal rate of substitution of X for Y = MUx/MUy = 5y²x/2x²y = 5y/2x

So the correct answer is B) 5y/2x

5. I. Marginal product of labour means the change in output per unit change in labour. Average product means total product divided by the total units of labour employed. So when the marginal product of labour falls, the average product of labour will also fall because the numerator i.e. total product will increase less compared to increase in the denominator i.e. total labour input.

II. In the second case, where the marginal product curve lies above the average product cure, the average product will rise because the increase in the total product i.e. numerator is more than the increase in the labour input i.e. denominator.

Hence, here the correct answer is A) Both I and II are true.