Question

If the price of both Diet Pepsi and Diet Coke is $0.50/can, what will John consume, and what's the Marginal Rate of Substitution (MRS)?

A) 2 cans of Diet Pepsi; MRS: 2
B) 1 can of each; MRS: 1
C) 2 cans of Diet Coke; MRS: 0.5
D) 2 cans of Diet Pepsi; MRS: 0.5

Answer 1

Without details on John's preferences, we cannot determine his consumption choice or the Marginal Rate of Substitution between Diet Pepsi and Diet Coke. However, the MRS is the slope of an indifference curve, representing how much of one good a consumer is willing to substitute for another to maintain the same level of utility.

Step-by-step explanation:

Given the scenario where the price of both Diet Pepsi and Diet Coke is $0.50 per can, John's choice of consumption and the Marginal Rate of Substitution (MRS) would depend on his preferences. If John is indifferent between Diet Pepsi and Diet Coke, he might consume one can of each, which has an MRS of 1. However, the question does not provide sufficient information about John's preferences, so any choice between A, B, C, or D cannot be determined without additional information about his utility or satisfaction derived from consuming these drinks. However, to understand the Marginal Rate of Substitution, it's the amount of one good a consumer is willing to give up for another while maintaining the same level of utility. If John's utility remains the same while consuming different combinations of Diet Pepsi and Diet Coke, the MRS is the slope of the indifference curve at any point, reflecting the rate at which John is willing to substitute one good for another.