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Managerial Economics by Vanita Agarwal

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Chapter 6

Ordinal Utility Approach: Indifference Curve Theory and Its Applications

After studying this chapter, you should be able to understand:

  • An indifference curve depicts various combinations of two goods, which give the same level of satisfaction or utility to the consumer.
  • A higher indifference curve depicts a larger amount of satisfaction than a lower one because it represents a greater quantity of good x or y or more of both x and y.
  • An indifference curve is negatively sloped.
  • An indifference curve is convex to the origin.
  • Indifference curves cannot intersect.
  • When goods x and y are perfect substitutes, the indifference curve is a downward sloping straight line and the MRSxy is constant.
  • When goods x and y are perfect complements, ...

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