Caroline lives in Detroit and loves to eat desserts. She spends her entire weekl

Question

Caroline lives in Detroit and loves to eat desserts. She spends her entire weekly allowance on jello and pie. A bowl of jello is priced at $1.75, and a piece of pumpkin pie is priced at $5.25. At her current consumption point, Caroline's marginal rate of substitution (MRS) of jello for pie is 3. This means that Caroline is willing to trade three bowls of jello 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? Caroline could increase her utility by buying more jello and less pie per week. Caroline's current bundle maximizes her utility, and she should keep it unchanged. Caroline could increase her utility by buying less jello and more pie per week.

Explanation / Answer

Yes the current bundle choosed by Caroline, maximized her utility, because the price of 3 bowls of jello is equals to the price of one piece of pumpkin pie.

So, the correct answer is

c. Caroline's current bundle maximizes her utility, and she should keep it unchanged.

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