The Tangency Condition for the Optimal Choice for a Consumer

question 4

Multiple Choice

The tangency condition for the optimal choice for a consumer is given by

• A) MRS_x,y = P_y/P_x
• B) MU_x/MU_y = 1
• C) MRS_x,y = P_x/P_y
• D) MU_x/MU_y = P_y/P_x

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Definitions:

Sunk Cost

Costs that are already spent and cannot be retrieved or reimbursed.

Unrecoverable Cost

Expenses that have been incurred and cannot be recovered or refunded, also known as sunk costs.

Cash Flows

The total amount of money being transferred into and out of a business, project, or financial product.

MACRS

Modified Accelerated Cost Recovery System, a method of depreciation used for tax purposes in the United States to recover the cost of tangible property over its useful life.