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Microeconomics

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Moderate

Individual Optimization: Does Not Equal To

MICRO-OMAREK

Martha, after some introspection, realizes that her current marginal rate of substitution (MRS) of coffee for eBooks is 2. That is, her marginal utility of coffee divided by her marginal utility of eBooks is 2. The current price of coffee is \$3 and the price of an eBook is \$2.

Is Martha currently maximizing her utility?

A

Yes, because her marginal utility for coffee equals the price of an eBook.

B

Yes, because her MRS equals the price ratio.

C

No, and she would be better off consuming more coffee and less eBooks.

D

No, and she would be better off consuming less coffee and more eBooks.