3.3 The diminishing marginal rate of substitution with Cobb-Douglas utility

Here we derive the marginal rate of substitution with a Cobb-Douglas utility function and explain why it diminishes when x increases and y decreases comparing different allocations on a given indifference curve.

[@beautifiedMEE]

Very very helpful thank youuuuu

[@missgrenade653]

Your videos are very helpful. However, does it mean that it exhibits diminidhing MRS because at one point it was higher and another point lower?

[@simondhalliday3919]

I'm going to respond to your question with a question and say if you substitute in two points (with corresponding x and y values) what happens to the value of the MRS? If you have one point with a large y and small x on a given indifference curve and another with small y and large x on the same indifference curve what is the value of the MRS at the two points? What does that suggest is true of points along the indifference curve?

[@missgrenade653]

I did that and it showed that MRS declined at different x and y points along the indifference curve. It made sense. Thank you very much. Just wanted to confirm.

[@missgrenade653]

Been sharing your videos with my mates

[@simondhalliday3919]

@@missgrenade653 Glad to help! And I hope you and they find them helpful. Just wish I had more time to make more of them! In case you missed it, my textbook is also available on my website for free (simondhalliday.com/microeconomics) in case some of the context is missing in the videos.

[@missgrenade653]

@@simondhalliday3919 I will check it out. Thank you!

[@theeconomicscoaching2587]

Which book should I used to prepration