Re: DSE 2015 answer

Posted by Mike on Jun 10, 2016; 9:35am
URL: http://discussion-forum.276.s1.nabble.com/DSE-2015-answer-tp7600806p7601360.html

31) The first condition is simply MRS = Px/Py
For well Behaved prefrences we use the above condition. Also, we have to look at the bordered hessian matrix to check if the prefrences are covex or not.
 bordered hessian matrix = 0    Px    Py
                                      Px   Uxx  Uxy
                                      Py   Uyx  Uyy
The determinant is equal to the determinant of the matrix given in the question. AN for convex prefrences the determinant of the bordered hessian matrix should be <=0.

Uxx = D11U(X1,X2)
similarly for others
so answer is (d)