Question

Paul consumes only books and DVDs. At his current consumption​ bundle, his marginal utility from DVDs is 1212 and from books is 44. Each DVD costs ​$66​, and each book costs ​$33. Is he maximizing his​ utility? Explain. Let MU Subscript Upper BMUB be the marginal utility of​ books, MU Subscript Upper DMUD be the marginal utility from​ DVDs, Upper P Subscript Upper BPB be the price of​ books, Upper P Subscript Upper DPD be the price of​ DVDs, and MRS be the marginal rate of substitution. Paul is

Answer 1

Answer:  MUb / Pb ∠ MUd / Pd

Step-by-step explanation:

First let us define the parameters given;

we have that :

Marginal utility of from book MUb = 44

Marginal utility of from DVD MUd = 1212

Cost of DVD Pd = $ 66

Cost of Book Pb = $ 33

Using,

⇒ MUb / Pb = 44 / 33 = 1.33

⇒ MUd / Pd = 1212 / 66 = 18.36

From this we can see that;

MUb / Pb ∠ MUd / Pd

The question asked is if he is maximizing his utility?

From the law of equi-marginal utility, a consumer will maximize utility only when the utility derived from every unit of spending on goods and services is the same. That is to say that for this to happen,

MUb / Pb = MUd /Pd.

But from the question solved, this is not true, so from the answer gotten The consumer is not maximizing his utility because;

MUb / Pb ∠ MUd / Pd

cheers i hope this helps.