MRS and utility maximization
Felix lives in Chicago and loves to eat desserts. He spends his entire weekly allowance on pudding and pie. A bowl of pudding is priced at $1.25, and a piece of pecan pie is priced at $5.00. At his current consumption point, Felix's marginal rate of substitution (MRS) of pudding for pie is 3. This means that Felix is willing to trade three bowls of pudding per week for one piece of pie per week. Does Felix's current bundle maximize his utility?in other words, make him as well off as possible? If not, how should he change it to maximize his utility?a Felix could increase his utility by buying less pudding and more pie per week. b Felix could increase his utility by buying more pudding and less pie per week. c Felix's current bundle maximizes his utility, and he should keep it unchanged.
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Sep 13, 2020EXPERT
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