Asked by Andrew Shoffler on May 18, 2024

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Toby Talkalot subscribes to a local phone service that charges a fixed fee of $10 per month and allows him to place as many local phone calls as he likes without further charge.Let good 1 be an aggregate of commodities other than local phone use and let good 2 be local phone use.(Measure good 1 on the horizontal axis and good 2 on the vertical axis.) On Monday, Toby didn't use the telephone at all.The slope m of his indifference curve at the consumption bundle he chose on Monday was

A) positive.
B) less than or equal to 0.
C) 0.
D) greater than or equal to 0.
E) negative.

Indifference Curve

A graph showing different combinations of two goods that give a consumer equal satisfaction and utility, highlighting their preferences.

Fixed Fee

A set amount charged for a service or product, unrelated to usage or quantity.

Local Phone Service

A telecommunications service that connects calls within a specific geographic area, typically within a single city or region.

  • Decode the implications of the marginal rate of substitution and its differential behavior along the continuum of indifference curves.
  • Learn how indifference curve analysis elucidates the rationale behind consumer selections of goods bundles.
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NI
Nikkie ImperialMay 23, 2024
Final Answer :
C
Explanation :
When Toby didn't use the telephone at all on Monday, his consumption bundle had zero units of good 2 (local phone use) and some positive quantity of good 1. At this point, the slope of his indifference curve would be 0 because no matter how much he increases his consumption of good 1 (and moves to the right along the horizontal axis), he still gets the same level of utility since his consumption of good 2 is zero. Therefore, the slope is equal to the change in utility (which is 0) divided by the change in good 1 (which is positive). Mathematically, this gives us a slope of 0.