Solution-Diminishing marginal rate of substitution of food

Diminishing marginal rate of substitution of food

Reference no: EM132519207

The utility that Person A receives by consuming food F and clothing C is given by:

U(F, C) = FC + F. The food costs 1 TL a unit, and clothing costs 2 TL a unit. Her income is 22 TL.

a) She is currently spending all of her income. She is buying 8 units of food. How many units of clothing is she consuming?

b) Graph her budget line. Place the number of units of clothing on the vertical axis and the number of units of food on the horizontal axis. Plot her current consumption basket.

c) Using algebra, find the utility-maximizing choice of food and clothing.

d) What is the marginal rate of substitution of food for clothing when utility is maximized? Show this graphically and algebraically.

e) Does she have a diminishing marginal rate of substitution of food for clothing? Show this graphically and algebraically.

Reference no: EM132519207

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Diminishing marginal rate of substitution of food

Reference no: EM132519207

Reference no: EM132519207

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