Suppose That a Consumer's Utility Function Can Be Written U(X,Y)

question 117

Essay

Suppose that a consumer's utility function can be written U(X,Y) = XY².
a. Use calculus to determine whether this consumer's marginal rate of substitution MRS_XY is increasing or decreasing in X.
b. Is this consumer's marginal rate of substitution MRS_XY increasing or decreasing in Y?

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Definitions:

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Useful Life

The estimated lifespan of a fixed asset, during which it can be expected to contribute to company operations.

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return, used in discounting to account for the time value of money.

Annual Cash Inflows

The total amount of money, primarily from operating activities, investments, and financing, that enters a company within a year.