Paul has the utility function U(q₁,q₂)= q₁q₂.If Paul consumes q₁= 4 and q₂= 2 his Marginal Rate of Substitution is A)-2. B)1. C)-1. D)-1/2.

Question

Quizplus · Accepted Answer

The Marginal Rate of Substitution (MRS) is given by the ratio of the marginal utilities of the two goods. MRS = MU(q₁)/MU(q₂) Taking the partial derivative of the utility function with respect to q₁, we get: MU(q₁) = q₂ Taking the partial derivative of the utility function with respect to q₂, we get: MU(q₂) = q₁ Substituting the given values, we get: MRS = MU(q₁)/MU(q₂) = 4/2 = 2 Therefore, the MRS between these two goods is 2. This means that Paul is willing to give up 2 units of q₂ for 1 unit of q₁, without changing his level of utility. The correct choice would be to consume more of q₁ and less of q₂, i.e., to move along the budget constraint towards the point where MRS = price ratio. Since the price of both goods is not given, we cannot determine the exact quantity of each good.

Paul Has the Utility Function U(q1,q2)= Q1q2

Paul Has the Utility Function U(q₁,q₂)= Q₁q₂