7. MRS and utility maximization Suppose your classmate Eleanor loves to eat dessert-so much so that she allocates her entire weekly budget to apple crisp and pie. The price of one bowl of apple crisp is $1.00, and the price of a piece of rhubarb pie is $3.00. At her current level of consumption, Eleanor's marginal rate of substitution (MRS) of apple crisp for pie is 3. In other words, Eleanor is willing to sacrifice three bowls of apple crisp for one piece of pie per week. Does Eleanor's current consumption bundle maximize her utility? That is, does it make her as well off as possible? If not, how should she change it to maximize her utility? O Eleanor could increase her utility by buying more apple crisp and less pie per week. Eleanor's current bundle maximizes her utility, and she should keep it unchanged. O Eleanor could increase her utility by buying less apple crisp and more pie per week.
7. MRS and utility maximization Suppose your classmate Eleanor loves to eat dessert-so much so that she allocates her entire weekly budget to apple crisp and pie. The price of one bowl of apple crisp is $1.00, and the price of a piece of rhubarb pie is $3.00. At her current level of consumption, Eleanor's marginal rate of substitution (MRS) of apple crisp for pie is 3. In other words, Eleanor is willing to sacrifice three bowls of apple crisp for one piece of pie per week. Does Eleanor's current consumption bundle maximize her utility? That is, does it make her as well off as possible? If not, how should she change it to maximize her utility? O Eleanor could increase her utility by buying more apple crisp and less pie per week. Eleanor's current bundle maximizes her utility, and she should keep it unchanged. O Eleanor could increase her utility by buying less apple crisp and more pie per week.
Chapter10: Consumer Choice Theory
Section: Chapter Questions
Problem 8P
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Transcribed Image Text:7. MRS and utility maximization
Suppose your classmate Eleanor loves to eat dessert-so much so that she allocates her entire weekly budget to apple crisp and pie. The price of one
bowl of apple crisp is $1.00, and the price of a piece of rhubarb pie is $3.00. At her current level of consumption, Eleanor's marginal rate of
substitution (MRS) of apple crisp for pie is 3. In other words, Eleanor is willing to sacrifice three bowls of apple crisp for one piece of pie per week.
Does Eleanor's current consumption bundle maximize her utility? That is, does it make her as well off as possible? If not, how should she change it to
maximize her utility?
Eleanor could increase her utility by buying more apple crisp and less pie per week.
O Eleanor's current bundle maximizes her utility, and she should keep it unchanged.
O Eleanor could increase her utility by buying less apple crisp and more pie per week.
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