Chapter 3

  1. 1.5 If the neutral product is on the vertical axis, the indifference curves are parallel vertical lines.

  2. 2.2 Sofia’s indifference curves are right angles (as in panel b of Figure 3.5 ). Her utility function is U=min(H,W),[&U|=|~rom~min~normal~(H, W),~norm~&] where min means the minimum of the two arguments, H is the number of units of hot dogs, and W is the number of units of whipped cream.

  3. 2.4 If we apply the transformation function F(x)=xρ[&F(x)|=|x^{|rho|}&] to the original utility function, the new utility function V(q1,q2)=F(U(q1,q2))=[(q1ρ+q2ρ)1/ρ]ρ=q1ρ+q2ρ,[&V(q_{1}, q_{2})|=|F(U(q_{1}, q_{2}))|=|[(q_{1}^{|rho|}|+|q_{2}^{|rho|})^{1/|rho|}]^{|rho|}&][&|=|q_{1}^{|rho|}|+|q_{2}^{|rho|},&] which has the same preference properties ...

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