1. suppose at a bundle (c, d) in the interior of the choice set, your MU for eac
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Question
1. suppose at a bundle (c, d) in the interior of the choice set, your MU for each good is zero. you are rational.
A) You will consume some bundle on the budget line. true or false.
B) Tim Finnegan decided to drink whiskey for the first time in his life, while sitting on top of a ladder. but after drinking 5 glasses ( non of which make him sad ), the moment he drinks the 6th glass, he is drunk falls down and hurts his head (which make him sad). A glass of whiskey cost 1 tim has 100 in his pocket. the first dat tim tried this he is hurt. time is rationale of the second day will he drink the 6th glass or not ? Assume prefernces do not change over time.
c. Can you compare (a) with tim's situation ? explain how ?
Explanation / Answer
A) You will consume some bundle on the budget line. true. Because we can maximize our utility on budgetline (optimal point).
b) On the second day he will not consume the 6th glass as it diminishes its marginal utility (got hurt).
c) Tim has reached its optimal in 5 glasses and after that MU diminishes. While in situation a, MU=0 implies the point of maximum consumer surplus, marginal utility would be equal to zero, since if P = 0, and MU = P, then MU = 0.
These two are different situations.
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