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1. For an individual who consumes only two goods, x and y, the opportunity cost...

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Accounting

1. For an individual who consumes only two goods, x and y, the opportunity cost of consuming one more unit of x in terms of how much y must be given up is reflected by:

a.

the individual's marginal rate of substitution.
b.

the market prices of x and y.
c.

the slope of the individual's indifference curve.
d.

none of the above.

Suppose an individual's MRS (of steak for beer) is 1:3. That is, at the current consumption choices he or she is willing to give up 3 steak to get an extra beer. Suppose also that the price of a steak is $1 and a beer is $4. Then in order to increase utility the individual should:

a.

buy more beer and less steak.
b.

continue with current consumption plans.
c.

none of answers above.
d.

buy more steak and less beer.

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