Question

Ronald, who consumes only hamburgers and hot dogs, has a weekly income of $50. He is currently consuming 20 hamburgers, at a price of $2 each, and 10 hot dogs, at a price of $1 each. If the last hamburger and the last hot dog both added 50 units to Ronald's total utility, he a. is making the utilitymaximizing choice. b. should buy more hamburgers and fewer hot dogs. c. should buy more hot dogs and fewer hamburgers. d. obtains more additional utility per dollar from hot dogs than from hamburgers. e. both c and d

Answer 1

Answer:

e. both c and d

• c. should buy more hot dogs and fewer hamburgers.
• d. obtains more additional utility per dollar from hot dogs than from hamburgers.

Explanation:

in order to determine if Ronald is maximizing his utility, we must calculate the utility per dollar spent:

• hamburgers's utility = utils / price = 50 / $2 = 25 utils per $
• hot dogs' utility =  utils / price = 50 / $1 = 50 utils per $

Ronald is not maximizing his utility since he is getting twice as much utils per dollar by consuming hot dogs. This means that he should increase the number of hot dogs eaten and decrease the number of hamburgers.