Suppose that Dale consumes only coffee and cheese, both of which have diminishing marginal utility. For each of the following cases, determine whether Dale should 1Consume more coffee and less cheese, or 2Consume less coffee and more cheese: 1.The marginal rate of substitution of cheese for coffee is 3 (i.e., the marginal utility of cheese is three times the marginal utility of coffee), while the price ratio is 2 (i.e., cheese costs twice as much as coffee). 2.The marginal rate of substitution of cheese for coffee is 1 (i.e., the marginal utility of cheese is equal to the marginal utility of coffee) while the price ratio is 2 (i.e., cheese costs twice as much as coffee). 3.The marginal rate of substitution is initially equal to the price ratio, but the price of coffee increases.
Suppose that Dale consumes only coffee and cheese, both of which have diminishing
1Consume more coffee and less cheese, or
2Consume less coffee and more cheese:
1.The marginal rate of substitution of cheese for coffee is 3 (i.e., the marginal utility of cheese is three times the marginal utility of coffee), while the
2.The marginal rate of substitution of cheese for coffee is 1 (i.e., the marginal utility of cheese is equal to the marginal utility of coffee) while the price ratio is 2 (i.e., cheese costs twice as much as coffee).
3.The marginal rate of substitution is initially equal to the price ratio, but the price of coffee increases.
4.The marginal rate of substitution is initially equal to the price ratio, but the price of cheese decreases.
5.The marginal rate of substitution is initially equal to the price ratio, but Dale enters exam week, increasing the marginal utility of coffee.
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