If the price of train rides is 1 and the price of food is 10, and the MRS of food for train rides expressed by Karl is 5, is Karl a utility maximizer? How do you know? If Karl is not maximizing, what should he do to improve his situation?
What will be an ideal response?
Since the slope of the budget line (10/1) is greater than the slope of the indifference curve (5) Karl is not maximizing his pleasure. Viewed graphically Karl's situation would appear as follows.
He should eat less food and take more train rides as the dotted curve above shows.
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