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Simone lives in Miami and loves to eat desserts. She spends her entire weekly allowance on jello and pie. A bowl of jello is priced at $1.50, and a piece of apple pie is priced at $4.50. At her current consumption point, Simone's marginal rate of substitution (MRS) of jello for pie is 4. This means that Simone is willing to trade four bowls of jello per week for one piece of pie per week.Does simone current bundle maximize his utility?

Respuesta :

Answer:

The correct answer is: No.

Explanation:

Simone consumes jello and pie.  

The price of a bowl of jello is $1.50.  

The price of an apple pie is $4.50.  

Simone's marginal rate of substitution of jello for pie is 4.  

Her utility from the current consumption of jello and pie will be maximized if the ratio of prices of two goods will be equal to the marginal rate of substitution.  

The ratio of prices of jello and pie is

= [tex]\frac{4.50}{1.50}[/tex]

= 3

The marginal rate of substitution is higher than the ratio.  

So, Simone can increase her utility by consuming more pie and less jello.  

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