Question 2
A consumer’s preferences are such that they are indifferent between all consumption bundles
(xF , xE ) satisfying √xF +2xE = 240 and also indifferent between all consumption bundles (xF , xE )
such that √xF + 2xE = 360.
(a) Graph the indifference curves for the consumer that pass through the consumption bundles
(100, 175) and (400, 110). Highlight the area of bundles weakly preferred to (100, 175), and
the area of bundles that (400, 110) is weakly preferred to. Which of these sets are convex?
(b) What is the slope of the the consumers indifference curves at the following points: (256, 112),
(100, 175), (100, 115), (121, 174.5)?
c) Are the two indifference curves you graphed examples of diminishing marginal rates of sub-
stitution?
