Shirley knows her marginal rate of substitution of mangoes for bananas is equal to 3.The price of bananas is $0.50 and the price of mangoes is $1.00.Shirley should buy more mangoes.

Question

Quizplus · Accepted Answer

The marginal rate of substitution measures how much of one good someone is willing to give up in exchange for one additional unit of another good, while keeping utility constant. In this case, Shirley is willing to give up 3 bananas for an additional mango. Since the price of mangoes is twice the price of bananas, Shirley can buy more units of mangoes and still be willing to give up 3 bananas. Therefore, she should buy more mangoes.

Shirley Knows Her Marginal Rate of Substitution of Mangoes for Bananas