Suppose your classmate Caroline loves to eat dessert—so much so that she allocates her entire weekly budget to chocolate mousse and pie. The price of one bowl of chocolate mousse is $1.25, and the price of a piece of rhubarb pie is $5.00. At her current level of consumption, Caroline's marginal rate of substitution (MRS) of chocolate mousse for pie is 3. In other words, Caroline is willing to sacrifice three bowls of chocolate mousse for one piece of pie per week.
Does Caroline'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?
Caroline could increase her utility by buying more chocolate mousse and less pie per week.
Caroline could increase her utility by buying less chocolate mousse and more pie per week.
Caroline's current bundle maximizes her utility, and she should keep it unchanged.
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