Suppose your classmate Hilary 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 $1.25, and the price of a piece of coconut crème pie is $5.00. At her current level of consumption, Hilary's marginal rate of substitution (MRS) of apple crisp for pie is 4. In other words, Hilary is willing to sacrifice four bowls of apple crisp for one piece of pie per week. Does Hilary'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 Hilary could increase her utility by buying more apple crisp and less pie per week. O Hilary could increase her utility by buying less apple crisp and more pie per week. O Hilary's current bundle maximizes her utility, and she should keep it unchanged.
Suppose your classmate Hilary 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 $1.25, and the price of a piece of coconut crème pie is $5.00. At her current level of consumption, Hilary's marginal rate of substitution (MRS) of apple crisp for pie is 4. In other words, Hilary is willing to sacrifice four bowls of apple crisp for one piece of pie per week. Does Hilary'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 Hilary could increase her utility by buying more apple crisp and less pie per week. O Hilary could increase her utility by buying less apple crisp and more pie per week. O Hilary's current bundle maximizes her utility, and she should keep it unchanged.
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.15P
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