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 $3 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 OA. 2.00, which is the price of clothing divided by the price of food. OB. 2.00, which is (minus) the slope of the budget line. OC. 2.00, which is Julio's level of satisfaction. O D. 0.50, which is the price of food divided by the price of clothing. OE. 0.50, which is the price of clothing divided by the price of food.
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 $3 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 OA. 2.00, which is the price of clothing divided by the price of food. OB. 2.00, which is (minus) the slope of the budget line. OC. 2.00, which is Julio's level of satisfaction. O D. 0.50, which is the price of food divided by the price of clothing. OE. 0.50, which is the price of clothing divided by the price of food.
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 $3
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
OA. 2.00, which is the price of clothing divided by the price of food.
O B. 2.00, which is (minus) the slope of the budget line.
OC.
2.00, which is Julio's level of satisfaction.
D. 0.50, which is the price of food divided by the price of clothing.
O E. 0.50, which is the price of clothing divided by the price of food.
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
0.50 because he will be consuming a bundle on the indifference curve that is
▼his
satisfaction maximizing bundle.
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