Fred loves tomatoes.He makes soups,sauces,and stews with them; stuffs them; roasts them; and grills them.Fred has discovered a farmer's market where the price of a bushel of tomatoes depends on how many bushels are purchased.The first bushel is $15; the second,$12; the third,$10; and four or more,$9 each.Fred has $82 to spend on tomatoes and on "all other things" during the coming week.All other things sell for $1 per unit.Assume that all other things are measured on the vertical axis.What is Fred's marginal rate of substitution if he chooses to buy 5 bushels of tomatoes?
A) -9.
B) 0.10.
C) 12.
D) 1/15.
E) 1/9.

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility. In this context, it refers to how many units of "all other things" Fred can give up to get one more bushel of tomatoes, after he has already decided to buy 5 bushels. Since the price of each bushel from the fourth one onwards is $9, and "all other things" sell for $1 per unit, the MRS is the price of a bushel of tomatoes ($9) divided by the price of "all other things" ($1), which equals 9. Therefore, Fred can give up 9 units of "all other things" to get one more bushel of tomatoes, making the MRS 1/9.

Fred Loves Tomatoes