Question

Jack maximizes her utility when she buys 6 pumpkins and 4 caramel apples. If the price...

Jack maximizes her utility when she buys 6 pumpkins and 4 caramel apples. If the price of pumpkins is $4 each, and the price of caramel apples is $2 each, which of the following must also be true when he is maximizing her utility? Assume the quantity of pumpkins is measured on the x axis, and the quantity of caramel apples is measured on the y axis.

Options:

A. Jack's income is $28

B. Jack's marginal rate of substitution is 2

C.The slope of Jack's indifference curve is -0.5

D. The slope of Jack's budget line is 2

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Answer #2

Option A is incorrect because at a utility maximizing point, consumer spend all her income. Total income = Price of pumpkin * Quantity of pumpkin consumed + Price of caramel apple * Quantity of caramel apple consumed = $4 * 6 + $2 * 4 = $32

Option B is incorrect because marginal rate of substitution (slope of indifference) is calculated as (marginal utility from pumpkin / marginal utility from caramel apple) which is not given here.

Option C is incorrect because marginal rate of substitution / slope of indifference curve is calculated as (marginal utility from pumpkin / marginal utility from caramel apple) which is not given here.

Option D is correct as Slope of a budget is calculated as: Price of pumpkin (Good on Y axis) / Price of caramel apple (Good on Y axis) = (4 / 2) = 2.

answered by: anonymous
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