Tom is stranded on a deserted island where he can only consume coconuts and crabs. Two of his indifference curves are in the figure above
a) Would Tom prefer his consumption to be at point a or at point b? At point b or at point c? Explain your answers.
b) Between points a and b, what is Tom's marginal rate of substitution for a crab?
a) Tom is indifferent between consuming at point a or at point b because both points are on the same indifference curve, I1. Tom would prefer to consume at point c rather than point b because point c is on a higher indifference curve, I2 versus I1.
b) Between points a and b, Tom's marginal rate of substitution for a crab is 2 coconuts per crab.
You might also like to view...
For given inputs of labor and capital, if technology is better, labor productivity will be
a. higher. b. lower. c. unchanged. d. characterized by increasing returns to scale.
Refer to Figure 29.2 for Farmer Smith with a price floor set above the market price. Assume the price support is located at the minimum point on the farmer's ATC curve. If this support is eliminated, all of the following will result except
A. The rate of return on invested capital will increase. B. Farmers will begin to lose money as the price returns to equilibrium. C. Fewer resources will be allocated to this market. D. Some farmers will leave the industry.