Question
Paul consumes only books and DVDs. At his current consumptionbundle, his marginal utility from DVDs is 14 and from books is 4. Each DVD costs
Paul consumes only books and DVDs. At his current consumptionbundle, his marginal utility from DVDs is 14 and from books is 4. Each DVD costs $13, and each book costs $3. Is he maximizing hisutility? Explain.
Let MUB be the marginal utility ofbooks, MUD be the marginal utility fromDVDs, PB be the price ofbooks, PD be the price ofDVDs, and MRS be the marginal rate of substitution.
I chose the answer Paul could increase utility while keeping total expenditures constant by consuming more DVDs and fewer books. However this is incorrect, not sure why? As Mub/Pb= 1.3 and Mud/Pd = 1.08. And to maximize the those should be equal?
Thax!
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