Question

Consider the following utility functions over Airpods and Ramen. Calculate the Marginal rate of substitution for each function, Assume that Airpods are on the Verticle axis and ramen is on the horizontal axis. 10 boxes of ramen and 1 airpod

M(R,A)=1000ln (A) +ln (R)

I (R,A)=250A + Ln R

D(R,A)=AR²⁰

Answer 1

(a)

M(R,A)=1000ln (A) +ln (R)

It is given that R is on Horizontal axis and A is on Vertical axis

Given R = 10 and A = 1

=>

=> MRS = -0.0001,

where negative (-) sign indicate that IC is downward sloping

(b)

I(R,A)=250A +ln (R)

It is given that R is on Horizontal axis and A is on Vertical axis

Given R = 10 and A = 1

=>

=> MRS = -0.0004,

where negative (-) sign indicate that IC is downward sloping

(c)

D(R,A)= AR²⁰

It is given that R is on Horizontal axis and A is on Vertical axis

Given R = 10 and A = 1

=>

=> MRS = -2

where negative (-) sign indicate that IC is downward sloping