d) How would the MRS change if x2 were the neutral good and x were the regular good? Question 7 (Preferences). John likes to drink Diet Coke (x1) and Diet Pepsi (x2). Suppose he has $30 and likes Diet Pepsi twice as much as Diet Coke. a) What will he consume if the price of Diet Coke is $0.50/can and the price of Diet Pepsi is $0.50/can? What is the MRS in this scenario? Briefly explain. b) What will he consume if the price of Diet Coke is $0.50/can and the price of Diet Pepsi is $0.75/can? What is the slope of the budget constraint in this scenario (put Diet Pepsi - x2 on vertical axis).? What is the MRS in this scenario? ) Suppose the price of a bottle of Diet Coke is $1. What would the price of a bottle of Diet Pepsi have to be for John to be indifferent between which product he purchases? Page 5