Answer to Question #198872 in Economics of Enterprise for hamza

Question

A consumer spends all her income on food and clothing. At the current prices of price of food = Rs. 10 and price of cloth = Rs. 5, she maximizes her utility by purchasing 20 units of food and 50 units of clothing.(Hint: Take food on x-axis and cloth on y-axis)

i)                   What is the consumer’s income?

ii)                 What is the consumer ‘s marginal rate of substitution of food for clothing at the equilibrium

Answer 1

i) The consumer’s income is:

$I = 10×20 + 5×50 = 450.$

ii) The consumer ‘s marginal rate of substitution of food for clothing at the equilibrium is: $MRS = Px/Py = 10/5 = 2.$