Suppose Bundle a Is Better Than Bundle B for a Consumer

question 14

Essay

Suppose bundle A is better than bundle B for a consumer, and bundle C is an average of bundles A and B.
a.Use the continuity, convexity and monotonicity assumptions to formally prove that this implies that bundle C is better than bundle B.
b.Did you also -- implicitly or explicitly -- use the rationality axioms?

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Definitions:

Financial Distress Costs

The direct and indirect costs associated with going bankrupt or experiencing financial distress.

Capital Markets

Financial markets where long-term debt and equity securities are bought and sold.

Derivatives

Financial instruments whose value is based on the value of an underlying asset, index, or security.

Forward Contracts

A financial agreement to buy or sell an asset at a specific future date for a price agreed upon today.