Suppose at a bundle (e,d), in the interior of the choice set, your MU for each g

Question

Suppose at a bundle (e,d), in the interior of the choice set, your MU for each good is zero. You are rational. You will consume some bundle on the budget line. True or False? Justify. Tim Finnegan decided to drink whiskey, for the first time in his life, while sitting on top of a ladder. But after drinking 5 glasses (none of which make him sad), the moment he drinks the 6th glass, he is drunk, falls down and hurts his head (which makes him sad). A glass of whiskey costs $1. Tim has $100 in his pocket. The first day Tim tries this, he is hurt. Tim is rational. On the second day will he drink the 6th glass or not? Assume preferences do not change over time. (**) Can you compare #6(a) with Tim's situation? Explain how.

Explanation / Answer

a) If the marginal utility becomes zero. It means that maximum total utility has been reached. If the commodity consumption continues to increase than marginal utility become negative. So we can say that at zero marginal utility consumption of commodity reached to its highest point.

b) After taking 5 drinks Tim has heart himself. It means hi s marginal utility has reached to the saturation points in 5 drinks. So if he will take 6th drinks it will adversely affect his health. It means 6th drinks will have negative marginal utility for Tim. So on the second day Tim must not go for the 6th drink.

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