Draw several of dr. strangetaste''s indifference curves

Assignment Help Econometrics

Reference no: EM131247209

This problem will help you understand what happens if the marginal rate of substitution is not diminishing. Dr. Strangetaste buys only french fries (F) and hot dogs (H) out of his income. He has positive marginal utilities for both goods, and his MRSH,F is increasing. The price of hot dogs is PH, and the price of french fries is PF.

a) Draw several of Dr. Strangetaste's indifference curves, including one that is tangent to his budget line.

b) Show that the point of tangency does not represent a basket at which utility is maximized, given the budget constraint. Using the indifference curves you have drawn, indicate on your graph where the optimal basket is located.

Reference no: EM131247209

Questions Cloud

What percentage of this portfolio must an individual put : What assumptions concerning this portfolio and/or market conditions do you need to make to calculate the portfolio's beta?

How should he reallocate his spending in order to increase : Dave currently consumes 10 hot dogs and 6 sodas each week. At his current consumption basket, his marginal utility for hot dogs is 5 and his marginal utility for sodas is 3. If the price of one hot dog is $1 and the price of one soda is $0.50, is ..

How much are you willing to pay for one share : How much are you willing to pay for one share today if the risk-free rate is 8%, the expected rate of return on the market is 18%, and the companys beta is 2.0?

What is the expected return of a zero beta portfolio : What is the expected return of a zero-beta portfolio, given that 50% of the index portfolio is invested in asset X and in asset Y?

Draw several of dr. strangetaste''s indifference curves : Show that the point of tangency does not represent a basket at which utility is maximized, given the budget constraint. Using the indifference curves you have drawn, indicate on your graph where the optimal basket is located

Calculate the covariance between portfolio a : Calculate the covariance between portfolio A, which has 10% in asset 1 and 90% in asset 2, and portfolio B, which has 60% in asset 1 and 40% in asset 2:

Draw a set of indifference curves : On a new graph draw the same budget line you found in part (a). Now draw a set of indifference curves that illustrates why Toni might not be better off with the frequent flyer program.

How would you combine the knowlode fund : Suppose that securities are priced as if they are traded in a two-parameter economy. - How would you combine the Knowlode Fund and a riskless security to obtain a portfolio with a volatility (beta) of 1.6?

Possible a graphical calculator : Evaluate f(x)=(2x^4-(3^x/100)) for at least five values of x between 0 and 1. Use this and possible a graphical calculator to evaluate limx->0 (2x^4-(3^x/100))

User Account

All Pages