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For the utility function U(X,Y) = XY^3, find the marginal rate of substitution and discuss how...

For the utility function U(X,Y) = XY^3, find the marginal rate of substitution and discuss how MRS XY changes as the consumer substitutes X for Y along an indifference curve.

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Answer #1

and

If consumer consumes more of X and less of Y along a downward sloping indifference curve, then the absolute value of MRS keeps on decreasing. This is also known as law of diminishing marginal utility. The below schedule shows the same -

X Y MRS = Y/3*X
5 58.48 3.90
6 55.03 3.06
7 52.28 2.49
8 50.00 2.08
9 48.07 1.78
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