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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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