A consumer's utility-maximizing bundle contains positive amounts of both goods. This implies
A)there is an interior solution.
B)there is a corner solution.
C)MRT does not equal MRS.
D)the budget constraint is not tangent to the indifference curve.

Question

Quizplus · Accepted Answer

An interior solution means that the consumer is choosing a combination of both goods at positive levels rather than choosing one good exclusively (corner solution). An interior solution also implies that the marginal rate of substitution (MRS) is equal to the ratio of prices (MRT) at the point where the budget constraint is tangent to the indifference curve. Therefore, since the question states that the consumer's utility-maximizing bundle contains positive amounts of both goods, it implies that there is an interior solution.

A Consumer's Utility-Maximizing Bundle Contains Positive Amounts of Both Goods