Microeconomics 2nd Edition Bernheim Solutions Manual 1

Chapter 04 – Consumer Preferences
Solution Manual for Microeconomics 2nd Edition

Bernheim Whinston 0073375853 9780073375854
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Answers to End-of-Chapter Discussion Questions

1. Suppose bundles A and B lie on the same indifference curve. Bundle C lies
between bundles A and B, on a straight line that connects them. The consumer’s
preferences satisfy the Declining MRS Principle. Does the consumer prefer C to
A and B, or does he prefer A and B to C? Explain your answer.
Answer:
The consumer prefers C to A and B. Your answer is justified because the consumer's
indifference curves are convex to the origin.
Note that the Declining MRS Principle implies the indifference curves are convex to the
origin. Since C lies between bundles A and B, on a straight line that connects them, C lies
above the indifference curve that contains A and B. (Draw the diagram on a separate
paper.) Therefore, C is preferred to both A and B.
2. What do you think the indifference curves shown in Figure 4.5 would look like
for the type of person who prefers to drive a sports car? What about the type of
person who prefers to drive a subcompact?
Answer:
A person who likes to drive a sports car would be willing to give up more fuel economy
to get additional horsepower, so their indifference curve would be flatter.
4-1
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A person who likes to drive a subcompact would be willing to give up more horsepower
to get additional fuel economy, so their indifference curve would be steeper.
3. According to your preferences, do the following pairs of products serve as

complements or substitutes? Do your answers depend on the contexts in which the
goods are used? Please explain each answer.
a. Bread and butter.

b. Ballpoint pens and computers.
c. Facsimile service and mail service.
d. Movies and video games.
e. Gasoline and ethanol.
f. Wireless telephone service and standard (wired) telephone service.
g. Different CDs recorded by the same rock group.
h. Lettuce and ground beef.
Answer:
a. Bread and butter: Compliments
b. Ballpoint pens and computers: Substitutes
c. Facsimile service and mail service: Substitutes
d. Movies and video games: Substitutes
e. Gasoline and ethanol: Substitutes
f . Wireless telephone service and standard (wired) telephone service: Substitutes
g. Different CDs recorded by the same rock group: Substitutes
h. Lettuce and ground beef: Compliments
When two products are consumed together to generate a higher level of satisfaction, they
are complements. For example, bread and butter. On the other hand, when products can
be used interchangeably, they are substitutes. For example, butter and margarine. Note
that when products are substitutes, you may still use them together. For example,
consider Shell gasoline and BP gasoline. You can use them together if you like. You,
however, have the option of replacing Shell gasoline with BP gasoline, or vice versa,
without lowering your satisfaction. Your answers do not depend on the contexts in which
they are used for a typical consumer.
4. Do you think there is a workable way to obtain meaningful cardinal information

about a consumer’s well-being? If so, how might you go about it? If not, why not?
Answer:
No, because there is no meaningful way to measure human well-being on an absolute
scale. How much we would be willing to give up is an ordinal scale.
Answers to Problems
4-2
4.1 John’s MRS for reading books with watching movies is three movies per book
regardless of the amounts consumed.
a . Would he rather read two books and watch no movies, or read no books and
watch two movies?
b . What is the formula for his family of indifference curves? What do these
curves look like?
c. In this example, are movies and books perfect substitutes, perfect complements,
or neither?
Answer:
a. Read two books and watch no movies.
b. U = 3(Books) + Movies. Straight lines with a negative slope.
c. Perfect substitutes.
Explanation:
a. John would choose 2 books and no movies. Note that his marginal utility for reading
books is always higher than his marginal utility from watching movies.
b. His family of indifference curves is described by Movies = Utility – 3 Books.
c. In this example, reading books and watching movies are perfect substitutes.
4.2 Suppose there are two types of food, meat and bread. Draw indifference curves
for the following consumers.
a. Mia is a vegetarian who doesn’t care (one way or the other) about meat.
b. Taka, a sumo wrestler, cares only about the number of calories he consumes; he
wants to consume as many calories as possible.
Answer:
a. Horizontal straight lines, (assuming the y-axis represents bread).
b. Downward sloping straight lines.
Explanation:
a. Since Mia is a vegetarian, she does not care about meat. She gets utility only from the
amount of bread that she consumes. Since all points lying on a horizontal straight line
have the same y value (and therefore represent an identical amount of bread), she is
indifferent among all points lying on a horizontal straight line.
b. Taka cares only about the number of calories. Therefore, he cares about the total
amount of bread and meat that he consumes. Hence, meat and bread are perfect
substitutes for him. Thus, his indifference curves are downward sloping straight lines.
4.3 Latanya likes to talk on the telephone. We can represent her preferences with the
utility function U(B,J) = 18B + 20J, where B and J are minutes of conversation
per month with Bill and Jackie, respectively.
4-3
a. If Latanya plans to use the phone for one hour to talk with only one person,
with whom would she rather speak? Why?
b. What is the formula for her indifference curves? Plot a few of those curves.
c. What is Latanya’s marginal utility of speaking with Bill? What is her marginal
utility of speaking with Jackie?
d. What is Latanya’s MRS for minutes talking to Bill with minutes talking to
Jackie?
Answer:
a. Jackie. The marginal utility of talking to Jackie is higher.
b. J = U/20 - 0.9B. This equation assumes that minutes of conversation with Jackie is on
the y-axis and minutes of conversation with Bill is on the x-axis. Hence, her indifference
curves are a straight line.
c. 18 (Bill). 20 (Jackie).
d. 0.9
Explanation:
Note that talking to Bill and Jackie are perfect substitutes for Latanya. Hence, her
indifference curves are a straight line. To draw a typical indifference curve, plot the
equation 18 B + 20 J = U, where U denotes a fixed level of utility. For example, suppose
U = 180. Then, when B = 0, J must be 180/20 = 9, so that 18 B + 20 J = 180. Similarly,
when J = 0, B must be 180/18 = 10, so that 18 B + 20 J = 180. Therefore, joining the
points (B = 0, J = 9) and (B = 10, J = 0), we get an indifference curve corresponding to
the utility level U = 180.
Her marginal utility of talking to Bill is 18, while her marginal utility of talking to Jackie
is 20. Therefore, if she has only 1 hour to talk to one person, she will prefer to talk to
Jackie. Also, observe that Latanya's MRS for minutes talking to Bill with minutes talking
to Jackie equals her marginal utility of talking to Bill divided by her marginal utility of
talking to Jackie multiplied by -1, which is (−18/20) x -1 = 0.9.
4.4 Esteban likes both chocolate ice cream and lemon sorbet. His preferences
correspond to the utility function U(C, S)=C1/3S2/3, where C stands for ounces of
chocolate ice cream and S stands for ounces of lemon sorbet.
a. Write a formula for Esteban’s family of indifference curves. Plot some of those
curves on a graph.
b. Would Esteban rather have four ounces of chocolate ice cream and two ounces
of lemon sorbet or two ounces of chocolate ice cream and four ounces of lemon
sorbet?
Answer:
a. C = U3/S2 A typical indifference curve is a downward sloping curve that is convex to
the origin.
b. Two ounces of chocolate ice cream and four ounces of lemon sorbet.
4-4
Explanation:
Writing , it follows that:
The given utility function is a Cobb-Douglas utility function. The corresponding

indifference curves are downward sloping curves that are convex to the origin. When C =
4 and S = 2, U = 2.52, whereas when C = 2 and S = 4, U = 3.17.
4.5 Raj's utility for bundles of X and Y is given by
a. Fill in the table below with Raj's utility for the corresponding bundles.
b. Write a formula for Raj's indifference curves. Draw one such curve.
c. Do Raj's preferences satisfy the More-Is-Better Principle?
Answer:
a.
X=1 X=2 X=3

Y=1 1 2 3
Y=2 2 4 6
Y=3 3 6 9
b. Y = U/X
4-5
c. Yes.
Explanation:
Using the X and Y values in U(X,Y) = XY, complete the table. Draw the graph by
choosing the points (1,4), (2,2), and (4,1). Raj's preferences satisfy the More-Is-Better
Principle because as long as X (or Y) goes up without a corresponding change in Y (or X),
his utility goes up.
4.6 For lunch, Ada prefers to eat soup and bread in fixed proportions. When she eats
X pints of soup, she prefers to eat ounces of bread. If she has X pints of soup
and more than ounces of bread, she eats all the soup along with ounces of
bread, and throws the extra bread away. If she has X pints of soup and fewer than
ounces of bread (say, Y ounces), she eats all the bread along with Y2 ounces of
soup, and throws the extra soup away.
Draw Ada’s indifference curves between soup and bread.
Answer:
4-6
Explanation:
Soup and bread are perfect complements for Ada. She consumes these goods in fixed
proportions, and her indifference curves are drawn as right angles with the corner at the
selected bundle (X1/2,X).
4.7 Ryan hates both water pollution and air pollution. He thinks that the marginal
harm caused by water pollution rises with the total amount of water pollution, and
that the marginal harm caused by air pollution rises with the total amount of air
pollution. Sketch Ryan’s indifference curves for the amount of water pollution
and the amount of air pollution. Indicate how he ranks the curves you’ve drawn.
Answer:
a. Figure C.
b. Indifference curve 1.
Explanation:
Ryan's indifference curves for these two "bads" will be concave to the origin like figure
C. An average bundle of any two points on a given curve would represent less air and
water pollution and thus be preferred to two points on the curve. Also, movement toward
the origin makes Ryan better off—there is less of these two bads.
4-7
4.8 Fuhito’s marginal utility for burgers is equal to 3 times the number of sodas he is
consuming, regardless of the number of sodas.
a. What is Fuhito’s utility function for burgers and sodas?
b. What is Fuhito’s MRS for burgers with sodas?
c. What is Fuhito’s utility from 2 burgers and 2 sodas?
d. Draw all the combinations of burgers and sodas that would make Fuhito just as
happy as the combination in (c).
Answer:
a. U(B,S) = 3(BS)
b. MRS = S/B
c. 12
d.
Explanation:
Fuhito's marginal utility from burgers is 3 S. U(B,S) = 3BS satisfies this property. Also,
observe that Fuhito's marginal utility from sodas is 3 B. Hence, his MRS for burgers with
soda is −3S/3B x -1 = S/B. His utility from 2 burgers and 2 sodas is 3(2)(2) = 12. Note
that 4 burgers and 1 soda or 1 burger and 4 sodas result in a utility level of 12.
4.9 Suppose Juan's preferences over goods X and Y can be expressed by the utility
function
4-8
while Charlie's preferences can be expressed by the utility function
Suppose that Juan has 2 units of X and 2 units of Y, while Charlie has 3 units of X
and 4 units of Y.
a. What is the name for preferences like Juan's? What about Charlie’s?
b. What is the marginal utility of X for Juan given his current holdings?
c. What is the marginal utility of X for Charlie given his current holdings?
d. Will Juan and Charlie be willing to trade? If yes, give an example of an
acceptable trade. If not, explain why not.
Answer:
a. Juan’s preferences are perfect substitutes. Charlie’s preferences are perfect
complements.
b. 2
c. 0
d. Yes, Juan and Charlie be willing to trade.
Explanation:
Note that Charlie has 3 units of X and 4 units of Y. His utility function is U = min {3X,
2Y}. Since 2Y = 2(4) = 8, he does not get utility beyond 8/3 units of X. A trade can make
both better off. Suppose Charlie gives 1/6 unit of X to Juan and in exchange Juan gives
Charlie 1/4 unit of Y. Now Charlie has 3 − 1/6 = 17/6 units of X and 4 + 1/4 = 17/4 units
of Y. Hence, his utility is U = min {3(17/6), 2(17/4)} = min {17/2,17/2} = 8.5. So
Charlie's utility goes up after the trade. Now, Juan's utility before the trade was 2(2) + 2 =
6. After the trade, he has 2 + 1/6 = 13/6 units of X and 2 – 1/4 = 7/4 units of Y. Hence, his
utility after trade is 2(13/6) + 7/4 = 13/3 + 7/4 = 73/12 > 6. So Juan is also better off after
the trade.
4.10 Suppose Jennifer's preferences over bundles of muffins and scones are as follows.
If bundle 1 has more muffins than bundle 2, she prefers bundle 1 to bundle 2,
regardless of the number of scones in either. If the two bundles have the same
number of muffins, she prefers the one with more scones.
a. How does Jennifer rank the following bundles?
i. 4 muffins, 6 scones
ii. 4.1 muffins, 0.5 scone
iii. 0 muffins, 100 scones
4-9
b. Consider the case where Jennifer has 3.5 muffins and 4.3 scones. Show on a
graph all of the bundles she prefers to that one.
c. Are there any other bundles that Jennifer likes the same as the one mentioned in
part (b)?
d. Are Jennifer's preferences complete? Are they transitive? Do they respect the
More-Is-Better Principle?
e. Can you draw Jennifer's indifference curves? If yes, do so. If no, explain why
not.
f. Can you describe Jennifer's preferences with a utility function? If yes, identify
the function. If no, explain why not.
Answer:
a. (ii) > (i) > (iii)
b. Graph 10 B 2
4-10
c. No
d. Are Jennifer's preferences complete? Yes.
Are they transitive? Yes.
Do they respect the More-Is-Better Principle? Yes.
e. No
f. No
Explanation:
Jennifer prefers the bundle that has more muffins. So, she likes the bundle that has 4.1
muffins the most. Her next best bundle is the one with 4 muffins. She likes the bundle
that has 0 muffins the least. Relative to the point (3.5 muffins, 4.3 scones), she prefers all
bundles that have more than 3.5 muffins or 3.5 muffins, but more than 4.3 scones. She
cannot be indifferent between any two distinct bundles because one of the two bundles
must have more muffins and/or more scones. If one bundle has more muffins, she prefers
that bundle. If both bundles have the same number of muffins, then she prefers the bundle
that has more scones. Since she cannot be indifferent between any two distinct points, she
does not have any indifference curves. As a consequence, we cannot describe Jennifer's
preferences with a utility function.
4.11 Katerina has the following utility function for coffee and bagels
where C stands for cups of coffee and B stands for the number of bagels.
a. What is the name for utility functions of this form?

b. Draw Katerina’s indifference curve for U=1.
c. Katerina's friend Ramses also likes coffee and bagels. However, relative to
coffee, he likes bagels more than Katerina; that is, Ramses's MRS for bagels with
coffee is higher than Katerina's at any consumption bundle. Give an example of a
utility function that Ramses might have (There are many right answers, but you
only need to write down one.)
d. Draw Ramses’s indifference curve for U=1 on the same graph as in part (b).
Answer:
a. Cobb-Douglas
4-11
b.
c. U=C1/2B
d.
4-12
Explanation:
Katerina's MRS for bagels with coffee is:
MRSBC = -MUB/MUC x -1 = C/B
Ramses's MRS for bagels with coffee is:
MRSBC = -MUB/MUC x -1 = 2C/B
Therefore, starting with the same amount of bagels and coffee, Ramses is willing to give
up more coffee to get an extra unit of bagels. Following this argument, it follows that the
blue curve represents Ramses's indifference curve.
4.12 Kate has 24 M&Ms and Antonio has 12 Milk Duds. Suppose Kate’s MRS for
Milk Duds with M&Ms is 4 regardless of what she consumes, and that Antonio’s
4-13
is 3 regardless of what he consumes.
a. Suppose Antonio offers to trade Kate one of his Milk Duds for a certain number
of M&Ms. How many M&Ms will Kate be willing to give up for this Milk Dud?
How many M&Ms does Antonio require for this trade to make him at least as
well off as he was before the trade?
b. Suppose that Kate and Antonio trade until there is no further opportunity for
mutual gain. What can you say about how many Milk Duds and M&Ms they will
each have?
Answer:
a. Kate will be willing to give up 4 M&Ms. Antonio requires 3 M&Ms for his trade.
b. Kate and Antonio will exchange M&Ms for Milk Duds at a ratio between their MRS
of Milk Dud’s for M&Ms.
Explanation:
Kate would be willing to give up 4 M&Ms to get 1 Milk Dud. Antonio would be willing
to give up 1 Milk Dud to get 3 M&Ms. Initially, Kate has 24 M&Ms and Antonio has 12
Milk Duds. Therefore, Kate would be willing to give up 24 M&Ms to obtain 6 Milk
Duds. Antonio would be willing to give up 6 Milk Duds for 18 M&Ms. If both Milk
Duds and M&Ms are infinitely divisible, mutually beneficial trade will continue as long
as Kate has any M&Ms to trade. Therefore, at the end, Kate will trade all of her M&Ms.
In exchange, she will get 6 to 8 Milk Duds (this will depend on whether the rate at which
Kate and Antonio trade Milk Duds for M&Ms is closer to Kate’s MRS or Antonio’s
MRS). Antonio will keep the rest of the Milk Duds.
Answers to Calculus Problems
4.1 For the utility function:
calculate MUX, MUY, and MRSXY.
Answer:
a.
−𝑌
1
b. MUY = 𝑒 𝛼 [𝛼]
c.
4-14
Explanation:
4.2 Consider the utility function
a. For the points X = 1, 5, 10, and 20, find the amount of Y such that the pair (X,
Y) lies on the indifference curve associated with U = 10.
b. Calculate MRS for X with Y at each of these points.
c. Graph the indifference curve from part (a), as well as the tangent lines for each
bundle listed in part (b), indicating the slope of each.
Answer:
a.
X Y
1 1,000
5 40
10 10
20 2.5
b.
X MRS
1 2,000
5 16
10 2
20 0.25
4-15
c.
X Slope
1 -2,000
5 -16
10 -2
20 -0.25
250
200
150
100
50
0 5 10 15 20
Explanation:
When X = 1 and U = 10, Y = 1,000. Hence:

2𝑌
MRSXY = = 2,000
𝑋
Answers to the other parts are similar.
4.3 Lafonda thinks X and Y are perfect substitutes, and she likes good X three times as
much as good Y.
a. Identify Lafonda’s utility function. Calculate her marginal utility of X and Y by

taking partial derivatives. Use your answers to calculate Lafonda’s MRSXY.
4-16
b. Three bundles lie on the same indifference curve. These bundles contain 0, 2,
and 4 units of X, respectively. How many units of Y might each of these bundles
contain? (There is more than one correct answer. You only need to give one.)
Answer:
a. U = 3X + Y
Marginal utility of X: 3
Marginal utility of Y: 1
Marginal rate of substitution for X with Y: 3
b. We will use U= 12. This delivers the following bundles:

X Y
0 12
2 6
4 0
Explanation:
Her utility function is U = 3X + Y.
Note that:
4.4 Consider the utility function:
a. Calculate MUX, MUY, and MRSXY in terms of X and Y.

b. Three bundles lie on the indifference curve associated with U = 1. These
bundles contain 0, 1/2, and 1 unit of X, respectively. How many units of Y does
each bundle contain?
c. Calculate the MRSXY for each of the bundles in part (b) using the formula you
derived in part (a).
d. Graph the indifference curve from part (b) along with the tangent lines for each
of the three bundles, indicating the slope of each.
Answer:
4-17
a. MUX = 1
1
MUY = 3Y–2/3
MRSXY = 3Y2/3
b. We obtain the following bundles:

X Y
0 1
1/2 0.125
1 0
c. We obtain the following MRSXY values corresponding to these bundles.
X MRS
0 3
1/2 0.75
1 0
d. The slopes for the tangent lines are the negatives of the MRSXY values in part (c).
1.2
1.0
0.8
0.6
0.4
0.2
0.2 0.2 0.4 0.6 0.8 1.0 1.2
0.2
Explanation:
a.
4-18
b. For each X, solve for Y such that X + Y1/3 = 1.
When X = 0, Y1/3 = 1. Hence, Y = 1.

When X = 1/2, Y1/3 = 1 - 1/2 = 1/2. Hence, Y = (1/2)3 = 1/8.
c. When X = 0, we know from part (b) that Y = 1. Therefore, using the part (a), we get
MRSXY = 3 (1)2/3 = 3.
where ln indicates the natural logarithm.
a. Calculate MUX, MUY, and MRSXY.
b. Compare the formula for MRSXY to the corresponding formula for Cobb-
Douglas utility. How do the indifference curves for these two types of utility
functions compare? In what way (if any) do they represent different preferences?
Answer:
a. Marginal utility of X (MUX): a/X
Marginal utility of Y (MUY): b/Y
Marginal rate of substitution for X with Y (MRSXY): (aY)/(bX)
b. Marginal rate of substitution for X with Y for U(X,Y) and Cobb-Douglas utility are
identical. Indifference curves for these two types of utility functions are identical. The
utility functions do not represent different preferences.
Explanation:
Hence, U(X,Y) is an increasing monotonic transformation of a Cobb-Douglas utility

function. Therefore, the utility functions represent the same preferences.
defined for values of X between 0 and .
a. Does this function satisfy the More-Is-Better Principle? If this function violates
that principle, for what values of X is it violated, and why?
4-19
b. Are the preferences associated with this utility function transitive? Why or why
not?
Answer:
a. No. It is violated for values of X in between 1 and 3/2.
b. Yes.
Explanation:
Therefore, U(X) is a concave function of X. U(X) increases for X in (0, 1) and decreases
for X in (1, 3/2). U(X) reaches its maximum at 1. Hence, the function satisfies the More-
Is-Better Principle for X in (0, 1). The principle is violated for X in (1, 3/2).
Note that although U(X) is not monotonic in X, the transitivity condition is still satisfied.
Take X1 , X2 and X3 such that U(X1) > U(X2) and U(X2) > U(X3). Since, U(X1) , U(X2)
and U(X3) are real valued numbers, it follows that
U(X1) > U(X3).
4.7 Suppose a consumer's preferences can be described by the utility function

U(X, Y) = X + XY.
a. Do the consumer's preferences satisfy the More-Is-Better Principle?

b. Do the consumer's preferences satisfy the declining MRS property?
1
c. Does the utility function U(X, Y) = –X + XY represent the same preferences, or
different preferences? Explain your answer.
Answer:
a. Yes.
b. Yes.
c. Same preferences.
Explanation:
Note that utility increases if X and/or Y increases. Hence, the preferences satisfy the
More-Is-Better Principle.
The equation of an indifference curve is Y = (U – X)/X. Take any U and plot the equation.
4-20
Note that the indifference curve is convex to the origin. Therefore, the preferences satisfy
the declining MRS property. Alternatively, note that:
U(X, Y) = X + XY
MUX = 1 + Y
MUY = X
1+𝑌
MRSXY = 𝑋
Observe that as X increases, the consumer is willing to give up less Y to get an additional
unit of X.
U = X + XY and V = -1/(X + XY) represent the same preferences, because if bundle A is

preferred to bundle B according to U, then the same will hold for V. Seen another way,
the MRSXY for V is exactly the same as that for U.
4.8 Suppose a consumer's preferences for goods X and Y can be described by the
utility function
where A and B are positive numbers and R is a number that can be either positive
or negative.
a. Do the consumer's preferences satisfy the More-Is-Better Principle?

b. What is the consumer's marginal rate of substitution at the bundle (X, Y)? (The
answer will be a formula that gives the MRS as a function of the consumption
levels X and Y, and may also depend on the number A, B, and R.)
c. Do these preferences satisfy the declining MRS property? (Does your answer
depend on the value of R?)
d. Show that, for R = 1, we have the case of perfect substitutes.
e. Show that as R approaches 0, this utility function is associated with the same
preferences as the Cobb-Douglas utility function, U(X, Y) = XAYB. (Hint: Use the
fact that if two utility functions imply the same MRS at every consumption
bundle, then they are associated with the same preferences.)
f. Show that as R approaches –∞ we have the case of perfect complements.
Answer:
a. Yes.
b. MRSXY = (AXR–1)/ (BYR–1)
c. Yes, when R < 1
d. When R = 1, U(X,Y) = AX + BY; hence, X and Y are perfect substitutes.
e. Note that as R approaches 0, the MRS approaches (AY)/(BX), The expression is the
same as the MRS of a Cobb-Douglas utility function.
f. This means that as R approaches –∞, we get perfect complements, since we have just
shown that in this case U(X, Y) = min{X, Y}.
4-21
Explanation:
a. Note that when R < 0 or R > 0, the utility function satisfies the More-Is-Better
Principle.
b.
c. Note that the utility function satisfies declining MRS property when R < 1, but not
when R > 1. When R > 1, R – 1 > 0. Therefore, an increase in X, keeping U constant,
increases the value of MRSXY .
When R < 1, 1 - R > 0. Therefore MRSXY may be written as
d. Since 1 – R > 0, an increase in X, keeping U constant, decreases the value of MRSXY .
When R = 1, U(X, Y) = AX + BY; hence, X and Y are perfect substitutes.
e. Note that as R approaches 0, the MRS approaches (AY)/(BX), The expression is the
same as the MRS of a Cobb-Douglas utility function:
f. Below we demonstrate how the utility function reduces to perfect complements when R
approaches negative infinity.
Suppose X < Y. Note that
4-22
Since X < Y, (X / Y) < 1. Therefore, as R approaches negative infinity (or, -R approaches

infinity), (X / Y)- R approaches 0. Consequently,
Hence, when X < Y and R approaches negative infinity, U(X, Y) approaches X, which is
the minimum of X and Y.
Similarly, it can be shown that when Y < X and R approaches negative infinity, U(X, Y)
approaches Y, which is the minimum of X and Y. This means that as R approaches –∞, we
get perfect complements, since we have just shown that in this case U(X, Y) = min{X, Y}.
4.9 Jake and Noelle are thinking about trading some candy. Jake has 1 M&M and 9
Starburst; Noelle has 9 M&Ms and 1 Starburst. Jake's preferences can be
represented with the utility function
while Noelle's preferences can be represented with the utility function
a. At Jake's initial bundle of M&Ms and Starburst, what is his MRSMS? What is
Noelle’s MRSMS at her initial bundle?
b. Draw an Edgeworth box showing the initial bundles for Jake and Noelle, Jake’s
indifference curve through his initial bundle, and Noelle’s indifference curve
through her initial bundle. Are there any trades that would make them both better
off? If so, show in the Edgeworth box the bundles that would result from those
trades.
c. A trade is “efficient” if it makes both Jake and Noelle better off, and if there is
no way to make both of them even better off through some additional trade.
Which trades between Jake and Noelle are efficient? Find all of them.
Answer:
a. Jake: 9; Noelle: 1
b. Jake gives Noelle 5 Starburst and Noelle gives Jake 3 M&Ms. Both Jake and Noelle
will be better off from this trade. There are others listed below.
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c. Jake gives Noelle 5 Starburst and Noelle gives Jake 4 M&Ms.

Jake gives Noelle 5 Starburst and Noelle gives Jake 3 M&Ms.
Jake gives Noelle 4 Starburst and Noelle gives Jake 3 M&Ms.
Explanation:
Notice that Jake cannot give away M&Ms, as he only has one to give and trading it
would give him a utility value of 0. Suppose Jake gives Noelle X Starburst and Noelle
gives Y M&Ms.
First, note that for Noelle to be better off, X must be larger than Y. Also, after the trade,
Jake's utility is (9 – X)(1 + Y), and for him to be better off this product must be larger than
9. Observe that if X = 5, Y = 3, then Noelle's utility is 12 and Jake's utility is 16, so this
trade would work. There are other values of X and Y that can make them both better off.
For instance, (X, Y) = (2, 1), (3, 1), (3, 2), (4, 1), (4, 2), (4, 3), (5, 2), (5, 3), (5, 4), (6, 3),
(6, 4), (6, 5), (7, 4), (7, 5), (7, 6). Also, check that (X = 4, Y = 3) and (X = 5, Y = 3 or 4)
are efficient, but all others are not.
Observe that if the products are infinitely divisible, then any trade giving rise to a final
outcome such that (1) Jake will have the same number of Starburst and M&Ms, (2) Jake
will have more than 3 of each, (3) Noelle will have the same number of Starburst and
M&Ms, (4) Noelle will have more than 5 of each is efficient.
4.10 Roberto and Emily meet for lunch. Roberto has 23 M&Ms (M) and 10 Starburst
(S); Emily has 2 M&Ms and 10 Starburst. Roberto's preferences can be described
by the utility function
While Emily's preferences can be described by the utility function
a. Draw an Edgeworth box showing the initial consumption bundles for Roberto
and Emily. Be sure to label the diagram completely. Draw their indifference
curves through these bundles. Calculate their marginal rates of substitution at
those bundles, and show graphically what those rates represent.
b. What is the best trade for Roberto that leaves Emily no worse off than she is at
her original bundle?
Answer:
a. Roberto's MRS for M with S, at M = 23 and S = 10 equals 0.220.
Emily's MRS for M with S, at M = 2 and S = 10 equals 5.
b. Roberto gives Emily 8 M&Ms and Emily gives Roberto 8 Starburst.

4-24
Explanation:
For Roberto:
Therefore, at M = 23 and S = 10, Roberto's MRSMS = 10 / (2 * 23) = 0.2173913
For Emily:
Therefore, at M = 2 and S = 10, Emily's MRSMS = S / M = 10 / 2 = 5.
Note that relative to Roberto, Emily values M&Ms more than Starburst. If Emily can
exchange one Starburst for one M&M, she would prefer to choose equal number of
M&M and Starburst.
Emily's utility is maximized when M = S. Roberto wants S larger. Thus, Emily could give
Roberto more S in exchange for M, and both her and Roberto's utility rises. This process
could occur without Emily losing utility until M = 10, S = 2 for Emily, in which case
Roberto's is as better off as he can be.
4.11 Alex has 6 M&Ms and no Starburst; Fred has 8 Starburst and 2 M&Ms. Alex's
preferences are described by the utility function
while Fred's preferences are described by the utility function
a . Draw a clearly labeled Edgeworth box showing Alex and Fred’s possible
consumption bundles. Be sure to label all the axes as well as the initial bundle.
Also, show and shade in the set of trades that makes at least one of them better
4-25
off, and does not make either worse off, compared with their original bundles. Be
sure to indicate clearly the boundaries of this set.
b . Of all the trades that make neither of them worse off, which is best for Fred?
c. Of all the trades that make neither of them worse off, which is best for Alex?
Answer:
a. Note that at the original bundle, Alex's utility is zero. Also, Fred's utility will be
maximized when M = S.
b. Alex gives Fred 6 M&Ms and Fred gives Alex 0 Starburst.
c. Alex gives Fred 2 M&Ms and Fred gives Alex 4 Starburst.
Explanation:
Note that at the original bundle, Alex's utility is zero. Also, Fred's utility will be
maximized when M = S. So, if Alex gives 6 M&Ms to Fred, he is not worse off. But
now Fred's utility reaches its maximum. Similarly, at the original bundle, Fred's utility is
16. So, if Fred gives 4 Starburst to Alex and Alex gives 2 M&Ms to Fred, then Fred won't
be worse off. But now Alex's utility reaches its maximum.
4-26

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Chapter 04 – Consumer Preferences

Solution Manual for Microeconomics 2nd Edition

Download full test bank at:

Answers to End-of-Chapter Discussion Questions

3. According to your preferences, do the following pairs of products serve as

a. Bread and butter.

4. Do you think there is a workable way to obtain meaningful cardinal information

Writing , it follows that:

The given utility function is a Cobb-Douglas utility function. The corresponding

4.5 Raj's utility for bundles of X and Y is given by

X=1 X=2 X=3

Draw Ada’s indifference curves between soup and bread.

while Charlie's preferences can be expressed by the utility function

a. How does Jennifer rank the following bundles?

a. What is the name for utility functions of this form?

MRSBC = -MUB/MUC x -1 = C/B

Ramses's MRS for bagels with coffee is:

MRSBC = -MUB/MUC x -1 = 2C/B

is 3 regardless of what he consumes.

Answers to Calculus Problems

4.1 For the utility function:

calculate MUX, MUY, and MRSXY.

4.2 Consider the utility function

When X = 1 and U = 10, Y = 1,000. Hence:

Answers to the other parts are similar.

a. Identify Lafonda’s utility function. Calculate her marginal utility of X and Y by

b. We will use U= 12. This delivers the following bundles:

4.4 Consider the utility function:

a. Calculate MUX, MUY, and MRSXY in terms of X and Y.

b. We obtain the following bundles:

0.2 0.2 0.4 0.6 0.8 1.0 1.2

b. For each X, solve for Y such that X + Y1/3 = 1.

When X = 0, Y1/3 = 1. Hence, Y = 1.

4.5 Consider the utility function:

where ln indicates the natural logarithm.

a. Calculate MUX, MUY, and MRSXY.

Hence, U(X,Y) is an increasing monotonic transformation of a Cobb-Douglas utility

4.6 Consider the utility function:

defined for values of X between 0 and .

4.7 Suppose a consumer's preferences can be described by the utility function

a. Do the consumer's preferences satisfy the More-Is-Better Principle?

U = X + XY and V = -1/(X + XY) represent the same preferences, because if bundle A is

a. Do the consumer's preferences satisfy the More-Is-Better Principle?

When R < 1, 1 - R > 0. Therefore MRSXY may be written as

d. Since 1 – R > 0, an increase in X, keeping U constant, decreases the value of MRSXY .

When R = 1, U(X, Y) = AX + BY; hence, X and Y are perfect substitutes.

Suppose X < Y. Note that

Since X < Y, (X / Y) < 1. Therefore, as R approaches negative infinity (or, -R approaches

while Noelle's preferences can be represented with the utility function

c. Jake gives Noelle 5 Starburst and Noelle gives Jake 4 M&Ms.

While Emily's preferences can be described by the utility function

b. Roberto gives Emily 8 M&Ms and Emily gives Roberto 8 Starburst.

Therefore, at M = 23 and S = 10, Roberto's MRSMS = 10 / (2 * 23) = 0.2173913

Therefore, at M = 2 and S = 10, Emily's MRSMS = S / M = 10 / 2 = 5.

while Fred's preferences are described by the utility function

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