Question: 7 . MRS and utility maximization Suppose your classmate Edison loves to eat dessert so much so that he allocates his entire weekly budget to
MRS and utility maximization
Suppose your classmate Edison loves to eat dessertso much so that he allocates his entire weekly budget to peach cobbler and pie. The price of one bowl of peach cobbler is $ and the price of a piece of blueberry pie is $ At his current level of consumption, Edison's marginal rate of substitution MRS of peach cobbler for pie is In other words, Edison is willing to sacrifice two bowls of peach cobbler for one piece of pie per week.
Does Edison'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?
Edison could increase his utility by buying more peach cobbler and less pie per week.
Edison's current bundle maximizes his utility, and he should keep it unchanged.
Edison could increase his utility by buying less peach cobbler and more pie per week.
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