In Problem 1, Charlie's utility function is U(A, B) = AB, where A and B are the numbers of apples and bananas, respectively, that he consumes. If Charlie is consuming 40 apples and 160 bananas, then if we put apples on the horizontal axis and bananas on the vertical axis, the slope of his indifference curve at his current consumption is
A) -4.
B) -8.
C) -41.
D) .

Question

Quizplus · Accepted Answer

The slope of the indifference curve is given by the negative of the marginal rate of substitution (MRS), which is the ratio of the marginal utilities. For U(A, B) = AB, the marginal utility of apples (MU_A) is B and the marginal utility of bananas (MU_B) is A. At the consumption point (40, 160), MRS = MU_A / MU_B = 160 / 40 = 4. Therefore, the slope is -4.

In Problem 1, Charlie's Utility Function Is U(A, B) =