7. MRS and utility maximization Suppose your classmate Felix loves to eat dessert-so much so that he allocates his entire weekly budget to apple crisp and pie. The price of one bowl of apple crisp is $1.75, and the price of a piece of coconut crème pie is $7.00. At his current level of consumption, Felix's marginal rate of substitution (MRS) of apple crisp for pie is 5. In other words, Felix is willing to sacrifice five bowls of apple crisp for one piece of pie per week. Does Felix's current consumption bundle maximize his utility? That is, does it make him as well off as possible? If not, how should he change it to maximize his utility? Felix could increase his utility by buying more apple crisp and less pie per week. Felix could increase his utility by buying less apple crisp and more pie per week. Felix's current bundle maximizes his utility, and he should keep it unchanged.
7. MRS and utility maximization Suppose your classmate Felix loves to eat dessert-so much so that he allocates his entire weekly budget to apple crisp and pie. The price of one bowl of apple crisp is $1.75, and the price of a piece of coconut crème pie is $7.00. At his current level of consumption, Felix's marginal rate of substitution (MRS) of apple crisp for pie is 5. In other words, Felix is willing to sacrifice five bowls of apple crisp for one piece of pie per week. Does Felix's current consumption bundle maximize his utility? That is, does it make him as well off as possible? If not, how should he change it to maximize his utility? Felix could increase his utility by buying more apple crisp and less pie per week. Felix could increase his utility by buying less apple crisp and more pie per week. Felix's current bundle maximizes his utility, and he should keep it unchanged.
Chapter10: Consumer Choice Theory
Section: Chapter Questions
Problem 8P
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Transcribed Image Text:7. MRS and utility maximization
Suppose your classmate Felix loves to eat dessert-so much so that he allocates his entire weekly budget to apple crisp and pie. The price of one bowl
of apple crisp is $1.75, and the price of a piece of coconut crème pie is $7.00. At his current level of consumption, Felix's marginal rate of substitution
(MRS) of apple crisp for pie is 5. In other words, Felix is willing to sacrifice five bowls of apple crisp for one piece of pie per week.
Does Felix's current consumption bundle maximize his utility? That is, does it make him as well off as possible? If not, how should he change it to
maximize his utility?
Felix could increase his utility by buying more apple crisp and less pie per week.
Felix could increase his utility by buying less apple crisp and more pie per week.
Felix's current bundle maximizes his utility, and he should keep it unchanged.
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