Elise
consumes cans of anchovies, q1, and boxes of biscuits, q2.
Each of her indifference curves...

Question

Elise
consumes cans of anchovies, q1, and boxes of biscuits, q2.
Each of her indifference curves reflects strictly diminishing marginal rates of
substitution. Where q1 = 2 and q2 = 2, her marginal rate
of substitution between cans of anchovies and boxes of biscuits equals -1. Will
she prefer a bundle with three cans of anchovies and a box of biscuits to a
bundle with two of each? Why?

Komalavalli · Accepted Answer

1. Bundle 3 cans of anchovies and two box of biscuits gives
MRS = -3/2 = -1.5
If she consumes more anchovies, her MU for anchovies decreases, and if she consumes less cookies, her MU for biscuits increases. As a result, her MRS will be less than -1.

Elise consumes cans of anchovies, q 1 , and boxes of biscuits, q 2 . Each of her indifference curves reflects strictly diminishing marginal rates of substitution. Where q 1 = 2 and q 2 = 2, her...

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