Suppose hamburgers are on the horizontal axis and root beer on the vertical axis.Your budget allowance is $10 and the price of hamburgers is $4 each and root beer $2 each.If at your present consumption of hamburger and root beer your marginal rate of substitution of hamburger for root beer is 4,to maximize utility you should:
A)consume more hamburger and fewer root beers.
B)consume fewer hamburgers and more root beers.
C)continue consuming the same quantity of both hamburgers and root beers.
D)continue consuming the same quantity of hamburgers but consume more root beer.

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) of 4 indicates you are willing to give up 4 root beers for 1 hamburger, but the price ratio is only 2 root beers per hamburger. To maximize utility, you should consume more hamburgers and fewer root beers until the MRS equals the price ratio.

Suppose Hamburgers Are on the Horizontal Axis and Root Beer