Question
Suppose an individual has preferences over bundles of two goods: books and pizza (assume that books and pizza are perfectly divisible, so fractions of a
Suppose an individual has preferences over bundles of two goods: books and pizza (assume that books and pizza are perfectly divisible, so fractions of a book and fractions of a pizza can be consumed). Assume the individual has a strictly diminishing marginal rate of substitution over these two goods. Suppose the individual is currently spending all of their available income on a bundle of books and pizza. At their current bundle of books and pizza, the individual's marginal utility from consuming books is 6 utils and their marginal utility from consuming pizza is 3 utils. If the current price of a book is $12 and the price of a pizza is $4, which of the following statements must be true:
The individual can increase their utility by consuming more books and less pizza
The individual can increase their utility by consuming more pizza and fewer books
The individual is maximizing their utility
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