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TEA [102]
3 years ago
5

Explain why taking a monotonic transformation of a utility function does not change the marginal rate of substitution (MRS).

Business
1 answer:
fredd [130]3 years ago
7 0

Explanation:

Monotonic transformation refers to changing the quantity of both the variables in a way that their ranking or order is preserved. Monotonic transformation of a utility function does not change the marginal rate of substitution as the order of preferences remains intact with the monotonic transformation. It's just the level of utility that either increases or decreases with such a transformation. The indifference curve shape remains the same. With monotonic transformation, consumer moves from a lower to higher or higher to lower indifference curve.

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Answer:

Sales Revenues 26100

COGS              <u>    5655</u>

gross profit        20445

rent expense                 1600

depreciation expense   200

operating expense <u>2600</u>

net income                16045

   

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Variable Cost               <u>     6305 </u>

Contribution margin        19795

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depreciation expense       200

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net income                   16045

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COGS

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