Explain the relationship between shadow prices and marginal rates of substitution in resource allocation.
Welcome!
This community is for professionals and enthusiasts of our products and services.
Share and discuss the best content and new marketing ideas, build your professional profile and become a better marketer together.
This question has been flagged
1
Reply
39
Views
shadow prices can reflect the MRS between resources when resources are scarce. If a system is optimally balanced, the shadow price of one resource relative to another may equal the MRS, showing the value of substituting one resource for another at that allocation level. This alignment is a signal of efficient resource distribution.