Adam consumes two goods x and y which cost £4 and £2 respectively.
Adams budget is £100. When Adams utility is maximised his marginal rate of substitution between y and x is.
1) 2
2) 0.5.
3)1.
4) 0
Any ideas and explanation would be good???
Thanks :)
I'm thinking:
Adam would give up 2 of Y (at £2ea) for 1 of X (at £4ea) to maintain the same level of satisfaction, so the marginal rate of substitution is therefore 2.
Any idea if that's right?