Question

You assume the following relationship: u=x1αx2β. You take the following monotonic transformation: v=ln(u). You get a linear relationship: v = α∙ln(x1) + β∙ln(x2). You run a linear regression and get point estimates a=2.07 and b=0.93. What do you think is the MRS between positive and negative ads

Answer 1

Answer:

MRS = -2.23 (x2/x1)

Explanation:

The concept of Marginal rate of substitution(MRS) is applied here. MRS occurs when a consumer is willing to give up a good at the expense of another whilst still maintaining the same utility. The principle of partial differentiation is mostly applied in MRS Calculation.

From MRS = -(MUx/MUy)

The steps are as shown in the attachment