Paul consumes only books and DVDs. At his current consumption bundle, his margin

Question

Paul consumes only books and DVDs. At his current consumption bundle, his marginal utility from DVDs is 30 and from books is 4. Each DVD costs $11, and each book costs $1. Is he maximizing his utility? Explain. Let MU_B be the marginal utility of books, MU_D be the marginal utility from DVDs, P_B be the price of books, P_D be the price of DVDs, and MRS be the marginal rate of substitution. Paul is A. maximizing his utility because MRS =MU_B/Mu_D B maximizing his utility because MU/P_B = MU_D/P_D c maximizing his utility because MU_B/P_B = MU_D/P_D D not maximizing his utility because MU_B/P_BMU_D/P_D. E not maximizing his utiHrvr because MRS MU_B/MU_D

Explanation / Answer

Option D.

This is because MU of DVD / Mu of B = 30 / 4

Price ratio = 11

SO, MU of DVD / MU of B < P of D / Price of B

So, Mu of D / P of D < MU of B / Price of B

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