# Econ 101: Principles of Microeconomics Fall 2012

Because the **marginal rate of substitution** equals the relative price of the two goods at the optimum, the **marginal rate of substitution** is $6/$3 = 2. In Figure 2, the **marginal rate of substitution** (MRS) of one point on an indifference curve is shown. The **marginal rate of substitution** shows the amount of wine the consumer

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Problem **1 (Marginal Rate of Substitution**) (a) For the third column, recall that by de nition MRS(x 1;x 2) = @U @x1 @U @x2 . Utility Function @U @x 1 @x 2 MRS(x 1;x 2) MRS(2,3) (i) U(x 1;x 2) = x 1x 2 x 2 x 1 x 2 x 1 3 2 ... (**Marginal** utility per dollar spent is equalized.) { Note: An equivalent way of writing this is MU 1 MU 2 = p p 2 (using ...

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