In Problem 1, Charlie's utility function is U(A, B) = AB, where A and B are the numbers of apples and bananas, respectively, that he consumes. If Charlie is consuming 35 apples and 175 bananas, then if we put apples on the horizontal axis and bananas on the vertical axis, the slope of his indifference curve at his current consumption is
A) -36.
B) -10.
C) .
D) -5.

Question

Quizplus · Accepted Answer

To find the slope of Charlie's indifference curve at his current consumption, we need to calculate the marginal rate of substitution (MRS):

MRS = change in A / change in B = MU(A) / MU(B), where MU represents the marginal utility of each good.

In this case, Charlie's utility function is U(A, B) = AB, giving him marginal utilities of:

MU(A) = B
MU(B) = A

Therefore, MRS = B / A. At his current consumption, Charlie is consuming 35 apples and 175 bananas, so his MRS is:

MRS = 175 / 35 = 5

The slope of his indifference curve is the negative of the MRS, so the answer is (D) -5. This indicates that Charlie is willing to give up 5 bananas to get one more apple and still remain equally happy (on the same indifference curve).

Since the MRS is constant along an indifference curve, any point on an indifference curve passing through the initial point (35,175) will have the same slope of -5. Therefore, we cannot determine the best choice(s) based on slope alone. We would need additional information such as the price of apples and bananas to determine the optimal consumption bundle.

In Problem 1, Charlie's Utility Function Is U(A, B) =