Luke has a monthly income of $80. He spends this money making telephone calls from home (measured in minutes of calls) and on other goods. His mobile phone company offers him two plans: Plan A: Pay no monthly fee and make calls for $0.50 per minute. Plan B: Pay a $30 monthly fee and make calls for $0.1 per minute.  On a separate graph, show a plausible indifference curve for Luke such that the two plans are indifferent for Luke.

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A:

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Marginal Rate of Technical Substitution

MRTS reaches a manufacturer when a part of the product is lowered to sustain the manufacturing level when the other part is extended. It is the level of the quantity that is lowered when one extra volume is used, and the output is unchanged.

Preferences and Utility Analysis

Before understanding what is preference and utility analysis, it is very important to understand the terms preference and utility separately.