If a consumer has chosen optimally, their Marginal Rate of Substitution is equal to the price ratio. Why is this? Interpret this in terms of the “price of utility” or “marginal utility per dollar” for each good.
Marginal Rate of Technical Substitution
MRTS reaches a manufacturer when a part of the product is lowered to sustain the manufacturing level when the other part is extended. It is the level of the quantity that is lowered when one extra volume is used, and the output is unchanged.
Preferences and Utility Analysis
Before understanding what is preference and utility analysis, it is very important to understand the terms preference and utility separately.
If a consumer has chosen optimally, their Marginal Rate of Substitution is equal to the price ratio. Why is this? Interpret this in terms of the “price of utility” or “
Marginal rate of substitution (MRS) is the rate at which an individual will be willing to substitute one good for another while being on the same indifference curve i.e. the utility level held constant.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
