Unformatted text preview: describe the graphical solution in 3. more precisely? The marginal rate of substitution, MRS is the marginal benefit of consuming x (measured in units of y) and the relative price of x, / x y p p is the marginal cost of x (measured in units of y). The MRS can also be written MU x /MU y . Hence, the equilibrium in 3. can be written MU x /p x =MU y /p y as well meaning that the marginal benefit per dollar spent on x should be equal to the marginal benefit per dollar spent on y. Budget set budget line MRS=p x /p y Indifference curve...
View
Full Document
 Winter '08
 Showalter,M
 Economics, Microeconomics, Utility, Marginal rate of substitution, Marginal concepts

Click to edit the document details