Huang is determining how much Coke and Pepsi he will buy. Use the information in italics to answer the bolded question below. Huang's preferences for Coke (C) and Pepsi (P) are represented by the following utility function: ● ● Huang has $12 to spend on soft drinks. • The price of Coke (P) is $0.50/can. • The price of Pepsi (Pp) is $1.00/can. Which of the following statements referring to Huang's preferences is incorrect. U = 2C + 3P Huang does NOT experience diminishing MRS. If Huang gives up two cans of Pepsi, he needs to purchase 3 cans of Coke to remain equally satisfied. Pepsi and Coke are perfect substitutes for Huang None of the above statements are incorrect.
Huang is determining how much Coke and Pepsi he will buy. Use the information in italics to answer the bolded question below. Huang's preferences for Coke (C) and Pepsi (P) are represented by the following utility function: ● ● Huang has $12 to spend on soft drinks. • The price of Coke (P) is $0.50/can. • The price of Pepsi (Pp) is $1.00/can. Which of the following statements referring to Huang's preferences is incorrect. U = 2C + 3P Huang does NOT experience diminishing MRS. If Huang gives up two cans of Pepsi, he needs to purchase 3 cans of Coke to remain equally satisfied. Pepsi and Coke are perfect substitutes for Huang None of the above statements are incorrect.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![Below is a transcription of the exercise appearing on an educational website:
---
**Context:**
Huang is determining how much Coke and Pepsi he will buy. Use the information in italics to answer the bolded question below.
* Huang's preferences for Coke (C) and Pepsi (P) are represented by the following utility function:
\[
U = 2C + 3P
\]
* Huang has $12 to spend on soft drinks.
* The price of Coke (\( P_c \)) is $0.50 per can.
* The price of Pepsi (\( P_p \)) is $1.00 per can.
**Question:**
Which of the following statements referring to Huang's preferences is **incorrect**?
1. Huang does NOT experience diminishing MRS.
2. If Huang gives up two cans of Pepsi, he needs to purchase 3 cans of Coke to remain equally satisfied.
3. Pepsi and Coke are perfect substitutes for Huang.
4. None of the above statements are incorrect.
---
**Note:** In the context of utility functions and consumer choice, the Marginal Rate of Substitution (MRS) and the concept of perfect substitutes are important concepts analyzed within this exercise.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F314f0635-1dd9-4d26-9205-7f03c7b2e19c%2Fddca255d-7f23-4f0f-9a88-39f4441a2ccc%2Flq8nowk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Below is a transcription of the exercise appearing on an educational website:
---
**Context:**
Huang is determining how much Coke and Pepsi he will buy. Use the information in italics to answer the bolded question below.
* Huang's preferences for Coke (C) and Pepsi (P) are represented by the following utility function:
\[
U = 2C + 3P
\]
* Huang has $12 to spend on soft drinks.
* The price of Coke (\( P_c \)) is $0.50 per can.
* The price of Pepsi (\( P_p \)) is $1.00 per can.
**Question:**
Which of the following statements referring to Huang's preferences is **incorrect**?
1. Huang does NOT experience diminishing MRS.
2. If Huang gives up two cans of Pepsi, he needs to purchase 3 cans of Coke to remain equally satisfied.
3. Pepsi and Coke are perfect substitutes for Huang.
4. None of the above statements are incorrect.
---
**Note:** In the context of utility functions and consumer choice, the Marginal Rate of Substitution (MRS) and the concept of perfect substitutes are important concepts analyzed within this exercise.
Expert Solution
Step 1
Utility : U=2C+3P
We will try to prove each statement correct/ incorrect step by step:
Option A
MRS or Marginal Rate of Substitution is the rate at which one good is given up to get an additional unit of the other good.
MRS is calculated by taking the ratio of the marginal utilities of the two goods.
MRS=MU of C / MU of P
MRS=2/3
So, here we can see that MRS is constant for all the combinations of goods.
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