Pencils sell for 10 cents and pens sell for 50 cents. Suppose Jack, whose preferences satisfy all of the basic assumptions, buys 5 pens and one pencil each semester. With this consumption bundle, his MRS of pencils for pens is 3. Which of the following is true? A. Jack is at a corner solution and is maximizing his utility. B. Jack could increase his utility by buying fewer pencils and fewer pens. C. Jack could increase his utility by buying more pencils and fewer pens. D. Jack could increase his utility by buying more pens and fewer pencils. E. Jack could increase his utility by buying more pencils and more pens.

Question

Maritza Stein

Mathematics

2 October, 17:35

Pencils sell for 10 cents and pens sell for 50 cents. Suppose Jack, whose preferences satisfy all of the basic assumptions, buys 5 pens and one pencil each semester. With this consumption bundle, his MRS of pencils for pens is 3. Which of the following is true? A. Jack is at a corner solution and is maximizing his utility. B. Jack could increase his utility by buying fewer pencils and fewer pens. C. Jack could increase his utility by buying more pencils and fewer pens. D. Jack could increase his utility by buying more pens and fewer pencils. E. Jack could increase his utility by buying more pencils and more pens.

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Answers (1)

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Raymond Arroyo · Answer 1

Option C is correct

Step-by-step explanation:

If his MRS of pencils for pens is 3, this means that, instead of buying 3 pens, he could have built just 1 pencil, which is much cheaper apparently (3 pens cost 150 cents, and one pencil just 10). Thus, he can increase his utility by buying more pencils and less pens. Option C is the correct one.