Suppose our consumer is at a point at which she values dining
out 4 times more than going to the movies; that is, if she gives up an evening
of dining out she needs 4 movies to keep her level of satisfaction
the same, to stay on her indifference curve. Suppose movies cost
20 (she takes a date and buys popcorn) and dining out cost 40.
She only has to give up 2 movies to free up 40 allowing her to
dine out another time, but she would have given up 4 so her utility
increases if she gives up 2 movies and dines in her favorite restaurant
once more. What happens to her rate of substitution if she does
this?
As she reduces movie consumption her MU for movies increases
and as she dines out more frequently her MU for dining out falls.
She should continue to reduce movie consumption and increase dining
out excursions until she values dining out only twice as much
as movies.
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