$04$Question$(2$ points$)$

Two roommates, Sally and Pricha, are trying to decide on the size of the package they should buy for the cable TV programming that they share. They can increase or decrease their package from the current size by changing the amount of money that they spend on cable.

$1$st attempt

Part $1(1$point$)$

Suppose that we normalize the price of the cable TV programming to $$1$ at their current package choice. Each roommate has a marginal rate of substitution between private consumption and her cable TV$.$ Sally's MRS is currently$0\mathrm{.}10,$ and Pricha's is$0\mathrm{.}60($both given in absolute value$).$

Are they consuming the optimal amount of cable TV $($that is$,$ is their current package the optimal size$),$ or should they change package size?

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Part $2(1$point$)$

Suppose that Sally's MRS is $0\mathrm{.}7$ instead of$0\mathrm{.}10.$ Is the current package size optimal?

Choose one:YesNo, they should reduce their package size.No$,$ they should increase their package size.

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