Because All Consumers Are Equating Their Marginal Rates of Substitution

question 29

Multiple Choice

Because all consumers are equating their marginal rates of substitution to the price ratio, when the price ratio equals the ratio of marginal costs, the consumers are also equating their marginal rates of _______________ to the ratio of marginal _______________, which is in turn equal to the marginal rate of _______________.

• A) transformation, costs, substitution
• B) substitution, costs, transformation
• C) costs, revenue, transformation

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Definitions:

Capital

Financial assets or resources that businesses or individuals use to generate wealth through investment, production, or development.

Labor

The physical and mental effort used in the production of goods and services, often considered one of the primary factors of production.

Marginal Physical Product

The extra yield obtained by employing an additional unit of a variable factor, while keeping all other factors unchanged.

Total Revenue Product

The total revenue generated from the sale of goods or services produced from a specific input or resource.