The optimal consumption rule implies that,if Pascal is maximizing his utility by spending all of his income on concert tickets and cab rides,with prices equal to P_Tickets and P_Rides,respectively,then it must be the case that MU_Tickets/MU_Rides = P_Tickets/P_Rides.

Question

Quizplus · Accepted Answer

The optimal consumption rule, also known as the equimarginal principle, states that a consumer will maximize their utility when the marginal utility per dollar spent on each good is equal. In this case, if Pascal is spending all of his income on concert tickets and cab rides, the rule applies and we can set up the equation: MUt/PT = MUr/Pr where MUt and PT are the marginal utility and price of concert tickets, and MUr and Pr are the marginal utility and price of cab rides. Solving for the ratio of prices, we get: PT/Pr = MUt/MUr which is equivalent to: MUr/PT = MUt/Pr Therefore, MU_Tickets/MU_Rides = P_Tickets/P_Rides is true based on the equimarginal principle.

The Optimal Consumption Rule Implies That,if Pascal Is Maximizing His