Suppose for a utility function that the marginal utility for good is given by $\mathrm { MUx } = 5 \mathrm { y } 2 / \mathrm { x }$ . Which of the following is correct?
A)The more is better assumption is not satisfied for in this utility function.
B)The more is better assumption is satisfied for in this utility function.
C)This shows a positive and increasing marginal utility of x.
D)The marginal rate of substitution must be diminishing.

Question

Quizplus · Accepted Answer

The marginal utility for good x is positive, hence the more is better assumption is satisfied. This also implies that the marginal utility of x is not decreasing as x increases, leading to a positive and increasing marginal utility of x. However, we cannot determine anything about the marginal rate of substitution with the information given about the utility function. The more is better assumption is satisfied because as x increases, the marginal utility of x (MUx) decreases but remains positive. Thus, more of x is still preferred over less of x. The given utility function does not contradict the law of diminishing marginal utility, as the marginal utility of x is decreasing. However, we cannot determine anything about the marginal rate of substitution from this information.

Suppose for a Utility Function That the Marginal Utility for Good