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
A)5
B)2
C)1/2
D)1/5

Question

Quizplus · Accepted Answer

The MRS (of soft drinks for hot dogs) is the ratio of the marginal utilities of the two goods. Here, the marginal utility of the hot dog is ten times that of the soft drink, so the individual is willing to give up 1/10th of a hot dog to get one more soft drink. Thus, the MRS is 1/10th hot dog per soft drink. However, the question asks for the number of hot dogs the individual is willing to give up for one more soft drink, so we take the reciprocal of the MRS to get 1/10th divided by 1, which is 1/10th or 0.1. Therefore, the individual is willing to give up 0.1 hot dogs to get one more soft drink. Simplifying, this is equivalent to 1/5th or 0.2 of a hot dog. Hence, the answer is D) 1/5.

Suppose That at Current Consumption Levels an Individual's Marginal Utility