3. Consider the utility function U (x,y) = x + y^(1/2).

(a) Is the assumption that more is better satisfied for both goods?

(b) Does the marginal utility of y diminish, remain constant, or increase as
the consumer buys more y? Explain.

(c) What is MRSx,y?

(d) Is MRSx,y diminishing, constant, or increasing as the consumer substi-
tutes x for y along an indi§erence curve?

(e) On a graph with x on the horizontal axis and y on the vertical axis,
draw a typical indifference curve
(it need not be exactly to scale, but it needs to reflect accurately whether there is a diminishing MRSx,y ). Also indicate on your graph whether the indifference curve will intersect either or both axes. Label the curve U1.

(f) On the same graph draw a second indifference curve U2, with U2 > U1.

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