Question

Kyoko lives in Detroit and loves to eat desserts. She spends her entire weekly allowance on pudding and pie. A bowl of pudding is priced at $1.00, and a piece of pecan pie is priced at $4.00. At her current consumption point, Kyoko's marginal rate of substitution (MRS) of pudding for pie is 5. This means that Kyoko is willing to trade five bowls of pudding per week for one piece of pie per week.

Does Caroline's current bundle maximize her utility-in other words, make her as well off as possible? If not, how should she change it to maximize her utility?
A. Caroline could increase her utility by buying more jello and less pie per week.
B. Caroline's current bundle maximizes her utility, and she should keep it unchanged.
C. Caroline could increase her utility by buying less jello and more pie per week.

Answer 1

C. Caroline (Kyoko) could increase her utility by buying less jello (pudding) and more pie per week.

Step-by-step explanation:

the rate of exchange = $4 / $1 = 4

marginal rate of substitution = 5

Kyoko can maximize her utility by increasing the consumption of pecan pie. She should increase her consumption of pecan pie until the marginal rate of substitution = 4.