Julio receives utility from consuming food (F) and clothing (C) as given by the utility function U(F,C) = FC. In addition, the price of food is $2 per unit, the price of clothing is $7 per unit, and Julio's weekly income is $50. What is Julio's marginal rate of substitution of food for clothing when utility is maximized? Explain. Julio's marginal rate of substitution equals A. 3.50, which is the price of clothing divided by the price of food. 'B. 0.29, which is the price of food divided by the price of clothing. C. 0.29, which is the price of clothing divided by the price of food. D. 3.50, which is (minus) the slope of the budget line. E. 3.50, which is Julio's level of satisfaction. Suppose instead that Julio is consuming a bundle with more food and less clothing than his utility maximizing bundle. Would this marginal rate of substitution of food for clothing be greater than or less than your answer above? Explain. If Julio is instead consuming a bundle with more food and less clothing than his utility maximizing bundle, then his marginal rate of substitution will be 0.29 because he will be consuming a bundle on the indifference curve that is his satisfaction maximizing bundle.
Julio receives utility from consuming food (F) and clothing (C) as given by the utility function U(F,C) = FC. In addition, the price of food is $2 per unit, the price of clothing is $7 per unit, and Julio's weekly income is $50. What is Julio's marginal rate of substitution of food for clothing when utility is maximized? Explain. Julio's marginal rate of substitution equals A. 3.50, which is the price of clothing divided by the price of food. 'B. 0.29, which is the price of food divided by the price of clothing. C. 0.29, which is the price of clothing divided by the price of food. D. 3.50, which is (minus) the slope of the budget line. E. 3.50, which is Julio's level of satisfaction. Suppose instead that Julio is consuming a bundle with more food and less clothing than his utility maximizing bundle. Would this marginal rate of substitution of food for clothing be greater than or less than your answer above? Explain. If Julio is instead consuming a bundle with more food and less clothing than his utility maximizing bundle, then his marginal rate of substitution will be 0.29 because he will be consuming a bundle on the indifference curve that is his satisfaction maximizing bundle.
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter6: Consumer Choice And Demand
Section: Chapter Questions
Problem 6QFR
Related questions
Question
100%
Transcribed Image Text:Julio receives utility from consuming food (F) and clothing (C) as given by the utility function U(F,C) = FC. In addition,
the price of food is $2 per unit, the price of clothing is $7 per unit, and Julio's weekly income is $50.
What is Julio's marginal rate of substitution of food for clothing when utility is maximized? Explain.
Julio's marginal rate of substitution equals
A. 3.50, which is the price of clothing divided by the price of food.
B. 0.29, which is the price of food divided by the price of clothing.
C. 0.29, which is the price of clothing divided by the price of food.
D. 3.50, which is (minus) the slope of the budget line.
E. 3.50, which is Julio's level of satisfaction.
Suppose instead that Julio is consuming a bundle with more food and less clothing than his utility maximizing bundle.
Would this marginal rate of substitution of food for clothing be greater than or less than your answer above? Explain.
If Julio is instead consuming a bundle with more food and less clothing than his utility maximizing bundle, then his
marginal rate of substitution will be
0.29 because he will be consuming a bundle on the indifference
curve that is
his satisfaction maximizing bundle.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning