Question

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 could increase his utility by buying more pens and fewer pencils. B) Jack could increase his utility by buying more pencils and fewer pens. C) Jack could increase his utility by buying more pencils and more pens. D) Jack could increase his utility by buying fewer pencils and fewer pens

Answer 1

Answer:

b. Jack could increase his utility by buying more pencils and fewer pens.

Explanation:

As you can see in the question above, pencils cost less than pens, because a pencil costs 10 cents, while a pen costs 50 cents. With the price of a pen it is possible to buy 5 pencils.

Jack is a person who uses many pens per seed, needing 5 of them, which gives a total of 250 cents spent per seed with the purchase of the pens. With 250 cents, Jack would be able to buy 25 pencils, which seems like a more profitable option.

For this reason, we can say that Jack could increase his utility by buying more pencils and fewer pens.