Author Question: Joe consumes crawfish and shrimp. His utility function exhibits diminishing marginal utility of ... (Read 121 times)

Destiiny22 · **on:** Jul 1, 2018

Joe consumes crawfish and shrimp. His utility function exhibits diminishing marginal utility of crawfish but the marginal utility of shrimp is constant. Will Joe's indifference curves be convex?

What will be an ideal response?

Question 2

If the demand curve for slices of pizza is given as Q = 300 - 16p, then the point elasticity of demand when price is 1.50 is

A) -24.
B) -16.
C) -0.0054.
D) -0.087.

Danny Ewald · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

Yes, Joe has quasi-linear utilitylinear in shrimp but diminishing in crawfish. This implies d2u/dC2 < 0. U(C,S) = u(C) + S where u(C) is an increasing, concave function. The slope of the indifference curve (MRS) is -du/dC. Differentiating again gives -d2u/dC2, which is positive by the assumption of diminishing marginal utility of crawfish.

Answer to Question 2

D