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Consider Charlie who consumes apples and bananas Suppose that he consumes one apple and 8 bananas That is his current consumption bundle is Suppose that Charlie's marginal rate

 Consider Charlie who consumes apples (xi) and bananas (2). Suppose that he consumes one apple and 8 bananas. That is, his current consumption bundle is (1,8). (a) Suppose that Charlie's marginal rate of substitution for one more apple is 2 bananas. If he is offered to trade apples and bananas at one-to-one rate, does he trade? Explain your answer. (b) Suppose that Charlie's preference is convex. If he were to consume 8 apples and one banana, his marginal rate of substitution would be (lower than, higher than, or the same as) 2 at the bundle (1,8). Explain your answer.

Apr 06 2020 Read more Less More

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