Mary has utility over Goods 1 and 2 given by U(x1, x2) = x12x2. What is the value of MRS(2, 3)?
Question:
Mary has utility over Goods 1 and 2 given by U(x1, x2) = x12x2. What is the value of MRS(2, 3)?
Marginal Rate of Substitution ( MRS )
The absolute value of the slope of indifference curve, that is {eq}-\frac{x1}{x2} {/eq} is the MRS between x1 and x2. So {eq}\frac{x1}{x2} {/eq} is the MRS. This indicates the amount of x2 that is to be sacrificed in order to enjoy one extra unit of x1.
Answer and Explanation: 1
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View this answerU(x1, x2) = x12x2.
Differentiating the utility function,
=> dU = x1 d( 2x2) + 2x2 dx1
=> 0 = 2x1 dx2 + 2x2 dx1
=> 0 = x1 dx2 + x2 dx1
=&...
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