Question: 7 . MRS and utility maximization Suppose your classmate Dmitri loves to eat dessert so much so that he allocates his entire weekly budget to
MRS and utility maximization
Suppose your classmate Dmitri loves to eat dessertso much so that he allocates his entire weekly budget to apple crisp and pie. The price of one bowl of apple crisp is $ and the price of a piece of rhubarb pie is $ At his current level of consumption, Dmitri's marginal rate of substitution MRS of apple crisp for pie is In other words, Dmitri is willing to sacrifice five bowls of apple crisp for one piece of pie per week.
Does Dmitri's current consumption bundle maximize his utility? That is does it make him as well off as possible? If not, how should he change it to maximize his utility?
Dmitri could increase his utility by buying less apple crisp and more pie per week.
Dmitri could increase his utility by buying more apple crisp and less pie per week.
Dmitri's current bundle maximizes his utility, and he should keep it unchanged.
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