Use the following statements to answer this question: I. The equal marginal principle may be used to characterize the maximum utility consumption decision even if the diminishing MRS assumption does not hold.
II) The equal marginal principle implies that the MRS at the optimal consumption bundle is always equal to the price ratio.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.

Question

Quizplus · Accepted Answer

The equal marginal principle relies on the assumption of diminishing MRS to characterize maximum utility. Without it, the principle may not hold. The MRS equaling the price ratio is a condition for optimality, but the equal marginal principle itself doesn't imply this directly.

Use the Following Statements to Answer This Question: I