Sun 17 Feb, 2013 11:23 pm
Kelly's utility function is given by U=5X+2Y, where MUx=5 and MUy=2
What is MRSxy when X=1 and Y=5?
MRSxy is (dU/dX)/(dU/dY)
In this case:
(dU/dX)/(dU/dY) = 5/2
because the utility function is linear.
MRSxy will be 2.5 no matter in which point of the utility curve we are.