Chapter7: Consumer Choice: Maximizing Utility And Behavioral Economics
Section7.1: Utility Theory
Problem 3ST
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Marginal Rate of Technical Substitution
MRTS reaches a manufacturer when a part of the product is lowered to sustain the manufacturing level when the other part is extended. It is the level of the quantity that is lowered when one extra volume is used, and the output is unchanged.
Preferences and Utility Analysis
Before understanding what is preference and utility analysis, it is very important to understand the terms preference and utility separately.
Question
If a consumer is rational and maximizing utility, their Marginal Rate of Substitution will be equal to the price ratio. Why is this?
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