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 $5 per unit, the price of clothing is $6 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 O A. 1.20, which is Julio's level of satisfaction. O B. 1.20, which is the price of clothing divided by the price of food O C. 0.83, which is the price of clothing divided by the price of food. O D. 1.20, which is (minus) the slope of the budget line 0.83, which is the price of food divided by the price of clothing. 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 0.83 his satisfaction maximizing bundle. because he will be consuming a bundle on the indifference curve that is
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 $5 per unit, the price of clothing is $6 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 O A. 1.20, which is Julio's level of satisfaction. O B. 1.20, which is the price of clothing divided by the price of food O C. 0.83, which is the price of clothing divided by the price of food. O D. 1.20, which is (minus) the slope of the budget line 0.83, which is the price of food divided by the price of clothing. 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 0.83 his satisfaction maximizing bundle. because he will be consuming a bundle on the indifference curve that is
Chapter21: Demand: Consumer Choic
Section: Chapter Questions
Problem 1E
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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 $5 per unit, the price of clothing is $6 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
O A. 1.20, which is Julio's level of satisfaction.
O B. 1.20, which is the price of clothing divided by the price of food
O C. 0.83, which is the price of clothing divided by the price of food.
O D. 1.20, which is (minus) the slope of the budget line
0.83, which is the price of food divided by the price of clothing.
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
0.83
his satisfaction maximizing bundle.
because he will be consuming a bundle on the indifference curve that is
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