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Author Question: Why does your marginal rate of substitution between chocolate and vanilla ice cream decline ... (Read 63 times)

B

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on: Jun 29, 2018
Why does your marginal rate of substitution between chocolate and vanilla ice cream decline continuously as you move rightward on your indifference curve between the two?
 
  What will be an ideal response?

Question 2

Referring to Situation 1 suppose that you can now hire two workers. What is the opportunity cost of the second executive's work from the viewpoint of the company? Explain.
 
  What will be an ideal response?


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kbennett34

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Reply #1 on: Jun 29, 2018
Answer to Question 1

With chocolate on the vertical axis and vanilla on the horizontal, as you move rightward along your indifference curve, the more chocolate you give up and the less you have remaining. As a result, you grow to value your chocolate more and more and your vanilla less and less. You therefore become willing to give up less chocolate to get more vanilla.

Answer to Question 2

The second executive's work is simply the value of the next best opportunity which is the work that could have been done by the third executive which is 500,000


B

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Reply 2 on: Jun 29, 2018
Great answer, keep it coming :)

mjenn52

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Reply 3 on: Yesterday
Wow, this really help

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