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Imagine that two goods are available to you: servants (X) and robots (Y). You like servants three times as much as robots. If your domestic help budget is $4,000 per month, the price (wage) of servants is $1500 per person per month, and the price (rent) of robots is $400 per unit per month, what is the value of the MktRS (market rate of substitution)

Sagot :

Answer: 3

Explanation:

The marginal rate of substitution simply means the rate at which one good will be exchanged for another good based on the current market price.

Since you like servants three times as much as robots, this implies that the utility that one gets from one servant is exactly like the utility that will be gotten from three robots.

Therefore, the utility function will be:

U = 3X + Y

Then, the marginal rate of substitution will be:

= MUX/MUY

= 3

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