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Chapter 4. Figure It Out

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Figure It Out: Antiono gets utility from consuming two goods, burgers and fries. His utility function is given by where B is the amount of burgers he eats and F the servings of fries.

Antonio’s marginal utility of a burger is , and his marginal utility of an order of fries is . Antonio’s income is $20, and the prices of burgers and fries are $5 and $2, respectively.

Which of the following represent’s Antonio’s marginal rate of substitution between burgers and fries, MRSBF?

A.
B.
C.
D.

Burgers cost $5, and fries cost $2. If Antonio maximizes his utility, how many fries should he purchase to accompany every burger?

Antonio should buy servings of fries for each burger he purchases.

When Antonio maximizes utility, his MRSBF = PB/PF. Antonio’s MRSBF = F/B; PB/PF = 5/2. So, F/B = 2.5, or F = 2.5×B. Antonio should purchases 2.5 orders of fries for each burger he buys. For further review see section “Indifference Curves”

If Antonio has $20 to spend, how many burgers and fries should he consume to maximize his utility?

A.
B.
C.
D.