Question

Suppose Bill has preferences over chocolate,x, and ice cream,y, that are represented by the

Cobb-Douglas utility function u(x, y) =x^2 y.

1. Write down two other Cobb-Douglas utility functions, besides the one above, that represent

Bill’s preferences.

2. Write down two more Cobb-Douglas utility functions that do NOT represent Bill’s prefer-

ences.

3. Draw 3 indifference curves that represents Bill’s preferences at 3 different levels of satsifaction.

4. What is Bill’s marginal rate of substitution between chocolate and ice cream? (Your answer

should be a function of x and y)

5. Suppose Bill is currently consuming the same quantity of chocolate and ice cream. What is

his marginal rate of substitution between chocolate and ice cream? Your answer should be a

number. Why? What does this number mean?

6. Would you say Bill is more of a chocolate fan or more of an ice cream fan? Why?

Answer 1

1)

IC in Q3)

Red : Satisfaction level = 5

Blue : satisfaction level = 10

Green : satisfaction level = 15