Kabir receives utility from consuming food f and clothing c...

Kabir receives utility from consuming food (F) and clothing (C). The marginal utility of food(MUf) is MUf=C and marginal utlity of clothing(MUc) is MUc=F. The price ratio of clothing to food is 5. Kabir consumes 16 units of food and 4 units of clothing. Is Kabir maximizing his utility by consuming this combination of food and clothing? If not, would increasing the consumption of clothing and decreasing the consumption of food increase Kabir’s utility? Explain your answer.

Transcript

00:01 So here we're given some information about someone's choices, right? this person has a marginal utility of food is the number of clothes, and the marginal utility of clothing is food.

00:14 And, you know, this is very easy to do.

00:16 If you want to think about the utility function between f and c, it would simply be the product of them, right? the product of them gives you these marginal utilities.

00:25 So the price ratio of clothing to food is fine.

00:28 We know the price of clothing over the price of food is five.

00:32 And we also know that food is equal to 16 and clothing is equal to four.

00:39 Is this person maximizing their utility, right? to do this, we can now compute the marginal utilities, right? this means the marginal utility of clothing is 16 and the margin utility of food is four.

00:54 And so in consumer choice, there is a necessary condition for optimization.

01:01 And that is the marginal utility of food over the price of food has to be equal to the marginal utility of clothing over the price of clothing.

01:12 And the way i remember that, this is marginal utility per dollar, right? so if this is 10 and this is 2, it means like you're getting five utility per dollar.

01:24 And if one activity is giving you five utility per dollar, but another activity is giving you seven utility per dollar, say 21 and three, this is better value because this is giving you more marginal utility per dollar.

01:40 So you can rearrange this in terms of the information we've been given, right? we can rearrange this as the price of clothing over the price of food has to equal the marginal utility of clothing over the marginal utility of food...

Question

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