Answer on Microeconomics Question for Marie Maloney
The marginal rate of substitution(MRS) of good or service X for good or service Y (MRSxy) is equivalent to the marginal utility of X over the marginal utility of Y. Formally,
When consumers maximize utility with respect to a budget constraint, the indifference curve is tangent to the budget line, so MRSxy=Px/Py. Or in our case MRS=4 (where instead of X-F, instead of Y-D).
Let’s check it:
To find the equilibrium we should solve the system of these two equations:
D/F=400/100 => D=4F
where& F=5, D=20 => MRSfd=4
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