Dan is consuming coffee and bagels so that MU_c/P_c = 15 and MU_b/P_b = 9.Using the equimarginal rule,Dan should A) continue to consume the same amount of coffee and bagels, as he is already maximizing utility. B) consume less of both coffee and bagels. C) consume more coffee and less bagels. D) consume less coffee and more bagels.

Question

Quizplus · Accepted Answer

Using the equimarginal rule, Dan should allocate his budget in such a way that the marginal utilities per dollar of the two goods are equal. MU_c/P_c = MU_b/P_b 15/PC = 9/PB PC/PB = 9/15 = 3/5 This means that Dan should spend 3 parts of his budget on coffee and 5 parts on bagels. Since Dan is already consuming coffee and bagels, we can determine whether he needs to consume more or less of each by comparing the current ratio of consumption to the desired ratio of spending: MU_c/MU_b = 15/9 = 5/3 Dan is currently consuming coffee to bagels at a ratio of 5/3. Since this is greater than the desired ratio of 3/5, Dan should consume less bagels and more coffee to reach the desired ratio. Therefore, the best choice for Dan is to consume more coffee and less bagels.

Dan Is Consuming Coffee and Bagels So That MUc/Pc =

Dan Is Consuming Coffee and Bagels So That MU_c/P_c =