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d. Set this slope equal to the slope of the budget line and solve for the consumption in period 1 and 2. The primary factors that cause a … See the answer. (27 points) For each of the following production functions, sketch a representative isoquant (2 points). The vertical sides ab, cd and ef represent ∆ Y and the horizontal sides, be, de, and fg signify A X. Problem Set 4 Solutions 1. The marginal rate of technical substitution shows the rate at which you can substitute one input, such as labor, for another input, such as capital, without changing the level of resulting output. b) Marginal rate of substitution denotes the rate at which a consumer can give up some amount of good for another, while maintaining the same level of utility. e. = d, but the interest rate is 20%. Problem 4 (24 points) Firm X has the following production function f(K, L) = (L + K. 2/3). The marginal rate of substitution is the number of units a consumer is willing to give up of one good in exchange for units of another good and remain equally satisfied. Write down Mainy's marginal rate of substitution. A marginal rate of substitution, therefore, exists only with respect to at least two goods. Question: If The Marginal Rate Of Technical Substitution Is MRTS = 0.5, THEN A) It Takes 2 Units Of Labor To Replace 1 Unit Of Capital B) The Marginal Unit Of Labor Is Only Half As Productive As The Marginal Unit Of Capital C) It Takes Half A Unit Of Capital To Replace 1 Unit Of Labor D) Both A AND B ARE CORRECT E) A, B AND C ARE CORRECT – The marginal rate of substitution of xfor yis increasing in the amount of y consumed and decreasing in the amount of xconsumed; holding utility constant,themoreytheconsumerhas,themoreyshewouldgiveupforone additionalunitofx. Home. MRS xy = ∆Y/ ∆X. (6 points) Find the marginal product of labor and capital and the marginal rate of technical substitution, and state if the returns to capital and labor are increasing, decreasing or constant. In Figure 12.10 there are three triangles on the I 1 curve. The marginal rate of substitution of X for Y (MRS XY) is in fact the slope of the curve at a point on the indifference curve.Thus. Find solutions for your homework or get textbooks Search. Doesn’t the theory of choice imply that the marginal rate of substitution between work and leisure should be given by the full wage rate? Explain what is ”weird” about this MRTS. Problem 1. Examplevalues: p Also calculate the marginal rate of technical substitution for each | bartleby This problem has been solved! We have step-by-step solutions for your textbooks written by Bartleby experts! Derive the –rst-order conditions for the agents maximization problem by placing a lagrange multiplier, , on the budget constraint. 1. Will Mainy be better or worse off? Derive two equations that combined with the budget constraint characterize the solution to the maximization problem, (c 1;c 2;L). Calculate the marginal product for each input, and indicate whether each marginal product is diminish­ ing, constant, or increasing (3 points). One condition should be for the marginal rate of substitution between c 1 and c The marginal rate of substitution is the rate at which a consumer of a particular product is willing to replace one good with another while still maintaining the same level of utility. It means that MRS xy is the ratio of change in good К to a given change in X. 2. Why do studies of urban transit choices find that people value their time at only about half their potential wage rates? Question: (2 Marks) What Does The Marginal Rate Of Substitution (MRS) Of Consumption For Leisure Tell You? Expert Answer . 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