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Joe prefers a higher average return

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Graph the utility maps for the following pairs of goods for Joe. Put the good that is listed first on the X-axis. For each graph, comment on why the shape of the indifference curves differs from the standard two-good utility maps. Make sure to label the indifference curves ascending with level of utility.

Coffee and milk. Assume that Joe always drinks his coffee with milk and never drinks milk on its own. Explain how the marginal utility of coffee changes as Joe drinks more coffee without adding any more milk.

Risk and average return. Assume that Joe prefers a higher average return, but is risk averse. Explain how his utility changes as he takes more and more risk. Which combinations of risk and return is Joe indifferent between?

Risk and average return. Now assume that Joe is still risk averse, but is willing to take a little more risk than before. Make sure to comment how this graph compares to the graph in b.

Reference no: EM131654515

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