ECON UN3211 - INTERMEDIATE MICROECONOMICS

Columbia University - Department of Economics

Spring 2024
Problem Set 1 - Solutions

1. Draw indifferences curves to represent each of the following type of preferences.

(a) Quarters-dollars: A consumer is always happy to change 4 quarters for 1 dollar.

Solution:
quarters

dollars
1 2

(b) Bicycle frames-tires: A consumer always wants 2 tires to go with 1 frame.

Solution:
frames (y)

2y = x

2 2 bikes
1 1 bike
tires (x)
2 4

2. Tom always begins his day with a strawberry milkshake. He makes it by mixing milk (x) with five
strawberries (y). The secret of a really good milkshake lies in the optimal proportion of milk and fruit:
one glass always comes with five strawberries.

(a) Plot Tom’s representative indifference curves. Depict three indifference curves that pass through
the following bundles (5, 1), (10, 10) and (15, 4). What is the MRS at each of these points?
Solution: See the graph below. MRS at each of these bundles is zero.
(b) What utility function represents these preferences? On the graph from (a), indicate the level of
utility corresponding to each indifference curve.
Solution: A utility function that represents these preferences would be u(x, y) = min{5x, y}. The
utility levels would be u(5, 1) = 1, u(10, 10) = 10, and u(15, 4) = 4

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 (c) Multiply your utility function by ten and add two to it. How did the indifference curves change?
How was the level of utility associated with each indifference curve affected?
Solution: We have, v(x, y) = 10 min{5x, y} + 2. Since v is a monotonic transformation of u,
shape of indifference curve and preference rankings will not be affected. But, the numbers utility
levels assigned on each indifference curve will change. We have v(5, 1) = 12, v(10, 10) = 102, and
v(15, 4) = 42.
strawberries (y)

y = 5x

(10,10)
10 2 milkshakes u = 10 v = 102

(15,4)
4 4/5 milkshakes u=4 v = 42

(5,1)
1 1/5 milkshakes u = 1 v = 12

milk (x)
1/5 4/5 2 5 10 15

3. Kate has two favorite kinds of apples: Fuji (x) and Gala (y). Kate loves them both and actually does
not distinguish between the two kinds.

(a) In a graph, show Kate’s indifference that pass through (2, 3) and (3, 3).
Solution:
gala (y)

fuji (x)
2 3 5 6

(b) Suggest two different utility functions that represent Kate’s preferences.
Solution: Here are some examples: u(x, y) = x + y, u(x, y) = (x + y)2 , u(x, y) = 5(x + y),
u(x, y) = x + y + 1000
(c) Find the marginal rate of substitution.
Solution: MRS is negative of the slope of IC which is 1 in this case.

4. Suppose the set of bundles is given by B = {B1 , B2 , B3 , B4 , B5 }. Also suppose that the preferences of a
consumer are given by B1 ≻ B2 ∼ B3 and B4 ≻ B5 . Can you represent these preferences by a utility

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 function? If you can give a utility function that does so. If not, explain why you cannot. Suppose now
we also have the information B5 ≻ B1 : Now, can you represent it with a utility function? If so, provide
one. If not explain.
Solution: No, because the preferences are not complete as we don’t know the preferences between
any of B1 , B2 , B3 and any of B4 , B5 . Once we have the information B5 ≻ B1 , now we have complete
preferences. These preferences are also transitive as we have the ranking B4 ≻ B5 ≻ B1 ≻ B2 ∼ B3 .
Since the preferences are both complete and transitive, there exits a utility function that represents
these preferences, for instance, u(B4 ) = 20, u(B5 ) = 15, u(B1 ) = 1, u(B2 ) = 0 and u(B3 ) = 0.

5. Suppose a consumer’s preferences can be represented by the following utility function; u(x, y) = x + y.

(a) Show that the utility function v(x, y) = 10x + 10y represent the same preferences with u, that is,
v and u are monotonic transformations of each other.
Solution: Arbitrarily pick two bundles x = (x1 , x2 ) and y = (y1 , y2 ), and show that both u and
v represent the same preference relation. Assume that x ≻ y, then u(x1 , x2 ) > u(y1 , y2 ), then
x1 + x2 > y1 + y2 , then 10x1 + 10x2 > 10y1 + 10y2 , that is v(x1 , x2 ) > v(y1 , y2 ).
(b) Show that the utility function z(x, y) = x + y 2 does not represent the same preferences with u, that
is, z is not a monotonic transformation of u.
Solution: Consider (1, 1) and (0, 2). According to u, u(1, 1) = 2, u(0, 2) = 2, then (1, 1) ∼ (0, 2).
According to z, z(1, 1) = 2, z(0, 2) = 4, then (1, 1) ≺ (0, 2). So they are not the same preferences,
hence z does not represent the same preferences as u does.

6. Jonas’s utility function is uJ (x, y) = xy. Martha’s utility function is uM (x, y) = 1000xy. Noah’s utility
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function is uN (x, y) = −xy. Ulrich’s utility function is uU (x, y) = −(xy+1) . Egon’s utility function
is uE (x, y) = xy − 10, 000. Claudia’s utility function is uC (x, y) = x − y. Helge’s utility function is
uH (x, y) = x (y + 1). Which of these people have the same preferences as Jonas?
Solution: We must check which of the utility functions (uM , uN , uU , uE , uC , uH ) are positive monotonic
transformations of uJ . We find that

uM (x, y) = 1000xy = 1000uJ (x, y)

increases as uJ increases,
1 1
uU (x, y) = =
− (xy + 1) −uJ (x, y) − 1
increases as uJ increases, and

uE (x, y) = xy − 10, 000 = uJ (x, y) − 10, 000

increases as uJ increases, and so Martha, Ulrich and Egon all have the same preferences as Jonas. On
the other hand, uN (x, y) = −xy = −uJ (x, y) is a negative monotonic transformation of uJ , so Noah
has the exact opposite preferences as Jonas, while uC and uH cannot be written as transformations of
uJ at all, and so neither Claudia nor Helge share Jonas’s preferences.

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7. For each of the following utility functions, find the marginal utilities (M Ux and M Uy ) and the marginal
rate of substitution between x and y, M RSxy , and explain whether M RSxy is diminishing or not.

(a) u(x, y) = 3x + y
Solution: M Ux = 3, M Uy = 1, |M RSxy | = 3, constant
(b) u(x, y) = x1/2 y
1y
Solution: M Ux = 21 x−1/2 y, M Uy = x1/2 , |M RSxy | = 2 x, diminishing
(c) u(x, y) = x1/3 y 2/3
1y
Solution: M Ux = 13 x−2/3 y 2/3 , M Uy = 2/3x1/3 y −1/3 , |M RSxy | = 2 x, diminishing
(d) u(x, y) = x2 + 3y − 2
2x
Solution: M Ux = 2x, M Uy = 3, |M RSxy | = 3 , increasing
(e) u(x, y) = x1/2 + y
Solution: M Ux = 21 x−1/2 , M Uy = 1, |M RSxy | = 21 x−1/2 , diminishing
(f) u(x, y) = (x + 2y)2
Solution: M Ux = 2(x + 2y), M Uy = 4(x + 2y), |M RSxy | = 1/2, constant
xy
(g) u(x, y) = x+y
2 y2
y x2
Solution: M Ux = (x+y) 2 , M Uy = (x+y)2
, |M RSxy | = x2
, diminishing
p
(h) u(x, y) = x2 + y 2
Solution: M Ux = 21 (x2 + y 2 )−1/2 2x, M Uy = 12 (x2 + y 2 )−1/2 2y, |M RSxy | = xy , increasing

8. Consider the following utility functions:

u(x, y) = xy
u(x, y) = x2 y 2
u(x, y) = lnx + lny
Show that all three utility functions have the same marginal rate of substitution, M RSxy . Is this a
coincidence? Why, why not?
Solution: All the three utility functions have the same M RSxy , since all utility functions are monotonic
transformation of each other.
For u(x, y) = xy, M Ux = y, M Uy = x, |M RSxy | = xy .
For u(x, y) = x2 y 2 , M Ux = 2xy 2 , M Uy = 2x2 y, |M RSxy | = xy .
For u(x, y) = ln x + ln y, M Ux = x1 , M Uy = y1 , |M RSxy | = xy .

9. Suppose that the consumer’s utility function is as u(x, y) = x + xy

(a) Find the equation for indifference curves where u = 40. Sketch the indifference curve.
40
Solution: Let 40 = x + xy, there is y = x −1

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 y

u = 40
40
x

(b) Find M RSxy by using the equation found in part (a).

Solution: MRS is the slope of the IC, that is, |M RS| is negative of the slope of the IC:
dy 40
|M RSxy | = − dx = x2
(c) Calculate marginal utilities.
Solution: M Ux = 1 + y and M Uy = x.
(d) Find M RSxy by marginal utilities from part (c).
y+1
Solution: |M RSxy | = x
(e) Show that M RSxy found in part (b) and (d) are the same.
40
Solution: Using the equation of the IC with u = 40, we get 1 + y = x . Replace y + 1 in the
y+1 2
expression that we found in part (d) with 40/x, |M RSxy | = x = 40/x , which is the result that
we found in part (b).

10. Al derives utility from three goods: music (m) , wine (w) and cheese (c). His utility function is of the
simple linear form u(m, w, c) = m + 2w + 3c.

(a) Assuming Al’s consumption of music is fixed at 10, determine the equations for the indifference
curves for w and c where u = 40 and u = 70. Sketch these curves.
Solution: For u = 40, there is c = 10 − 23 w. For u = 70, there is c = 20 − 32 w

c
20

10
-2/3
-2/3

u = 70
u = 40 w
15 30

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(b) Show that Al’s MRS of wine for cheese is constant for all values of w and c on the indifference
curves calculated in part (a).
ū−10
Solution: Let u = ū, we have c = 3 − 23 w, then |M RS| = − dw
dc
= 2
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(c) Suppose Al’s consumption of music increases to 20. How would this change your answers in part
(a) and (b)? Explain it intuitively.
Solution: If the consumption of music increases to 20, it lifts the linear indifference curve inward
toward the origin. The wine intercept is reduced by 5 units for both indifference curves. This is
because we need less wine and cheese to achieve the same utility levels. Slopes of ICs will not be
affected since the rate of substitution of wine for cheese will not be affected by an increase in music
consumption.