Question #48904

Sara spends her entire weekly food allowance of $42 on Zinger and soft drinks. The price of a Zinger is $2, and the price of a soft drink is $1. Sara purchases 12 Zingers and 18 soft drinks, and her marginal rate of substitution between Zingers and soft drinks is 1. Is this the optimal consumption of Sara? Explain.

Expert's answer

B = $42, Pz = $2, Psd = $1. Qz = 12 Zingers, Qsd = 18 soft drinks, MRSz sd = 1.

As MRSxy = MUx/MUy, then MUz/MUsd = 1, so MUz = MUsd

The optimal consumption that maximizes utility is in the point, where MUx/Px = MUy/Py, but in our case as MUz = MUsd, so MUz/$2 is not equal to MUsd/$1.

That's why this is not the optimal consumption of Sara and she needs to decrease consumption of Zinger and increase consumption of soft drinks, until MUz/Pz = MUsd/Psd.

As MRSxy = MUx/MUy, then MUz/MUsd = 1, so MUz = MUsd

The optimal consumption that maximizes utility is in the point, where MUx/Px = MUy/Py, but in our case as MUz = MUsd, so MUz/$2 is not equal to MUsd/$1.

That's why this is not the optimal consumption of Sara and she needs to decrease consumption of Zinger and increase consumption of soft drinks, until MUz/Pz = MUsd/Psd.

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