Editing Indifference curve (section)

==== Cobb–Douglas utility ====

A class of utility functions known as Cobb-Douglas utility functions are very commonly used in economics for two reasons:

1. They represent ‘well-behaved’ preferences, such as more is better and preference for variety.

2. They are very flexible and can be adjusted to fit real-world data very easily.
If the utility function is of the form <math>U\left(x,y\right)=x^\alpha y^{1-\alpha}</math> the marginal utility of <math>x\,</math> is <math>U_1\left(x,y\right)=\alpha \left(x/y\right)^{\alpha-1}</math> and the marginal utility of <math>y\,</math> is <math>U_2\left(x,y\right)=(1-\alpha) \left(x/y\right)^{\alpha}</math>.Where <math>\alpha<1</math>. The [[slope]] of the indifference curve, and therefore the negative of the [[marginal rate of substitution]], is then
:<math>\frac{dx}{dy}=-\frac{1-\alpha}{\alpha}\left(\frac{x}{y}\right).</math>