Draw several of dr. strangetaste''s indifference curves

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

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