The correct answer is option 2, which states that both statements 1 and 2 are correct.

Let`s analyze each statement to better understand them:

Statement 1: Indifference curves are convex to the origin.

Indifference curves are graphical representations of different combinations of two goods or services that provide the same level of utility or satisfaction to an individual. Convexity to the origin means that the indifference curve bends toward the origin, indicating that the individual prefers a combination with fewer goods or services. This is because the individual`s marginal utility for each good generally decreases as they consume more of it.

Statement 2: Higher indifference curve represents a higher level of satisfaction.

Indifference curves are typically drawn with higher levels of satisfaction further away from the origin. This is because as an individual consumes more of both goods, their satisfaction increases. Therefore, a higher indifference curve represents a combination of goods that provides a higher level of satisfaction for the individual.

Statement 3: Two indifference curves cut each other.

This statement is incorrect. Indifference curves do not intersect or cut each other. Each indifference curve represents a specific level of satisfaction or utility, and higher indifference curves represent higher levels of satisfaction. Therefore, they cannot cross, as that would imply that two different combinations of goods provide the