(Choices for each drop down are \"books\" and \"DVDs\" Paul consumes only books
ID: 1221027 • Letter: #
Question
(Choices for each drop down are "books" and "DVDs"
Paul consumes only books and DVDs. At his current consumption bundle, his marginal utility from DVDs is 27 and from books is 4. Each DVD costs S9, and each book costs $3. Is he maximizing his utility? Explain. Let MUB be the marginal utility of books, MUp be the marginal utility from DVDs, PB be the price of books, Pp be the price of DVDs, and MRS be the marginal rate of substitution. Paul is MUB MUD MUB MUD MUB MUD A. not maximizing his utility because--Explanation / Answer
MUd/Pd = 27/9 = 3
MUb/Pb = 4/3 = 1.33
So MUd/Pd>MUb/Pb
Which means that Paul should consume more of DVDs and less of books. Currently he is not maximizing his utlity.
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