If a corner solution exists,
A)marginal rate of substitution will always be equal to the slope of the budget constraint.
B)marginal rate of substitution will always be less than the slope of the budget constraint.
C)marginal rate of substitution will always be greater than the slope of the budget constraint.
D)none of the answer choices is correct.

Question

Quizplus · Accepted Answer

In a corner solution, the consumer chooses to consume only one of the goods, which means the optimal consumption bundle is at one of the corners of the budget constraint. This situation does not necessarily conform to the conditions described in options A, B, or C, as the marginal rate of substitution (MRS) and the slope of the budget constraint do not have a fixed relationship in corner solutions. The MRS may not be equal, less than, or greater than the slope of the budget constraint in a way that can be generalized, making none of the provided choices correct.

If a Corner Solution Exists