Question

8. Suppose that at current consumption levels an individual’s marginal utility of consuming an extra hot dog is 10 whereas the marginal utility of consuming an extra soft drink is 2. Then the MRS (of soft drinks for hot dogs)—that is, the number of hot dogs the individual is willing to give up to get one more soft drink is:

Answer 1

1/5

Step-by-step explanation:

Marginal rate of substitution (MRS) can be defined as the rate at which a consumer is willing to drop some goods in exchange for another entirely different good, but still wants to maintain the same utility level.

In this case MRS = Marginal utility of consuming an soft drink = 2

Marginal utility for consuming an extra hot dog = 10

Hence MRS (of soft drinks for hot dog) = Marginal utility of consuming an extra soft drink/Marginal utility of consuming an extra hot dog

MRS = 2/10

=1/5