Question

Paul consumes only books and DVDs. At his current consumption​ bundle, his marginal utility from DVDs is 20 and from books is 2.Each DVD costs ​$​6 , and each book costs ​$1 Is he maximizing his​ utility? Explain

Answer 1

Yes we can conclude that Paul is maximizing his utility.

How to solve for the utility

marginal utility of good b = MUb

price of good b = Pb

marginal utility of good d = MUd

price of good d = Pd

MUb / Pb = 20/6 = 3.33

MUd / Pd = 2/ 1 = 2

(MUb / Pb) > (MUd / Pd)

This is given that 3.33 is greater that 2.

Hence we have to say that he is maximizing his utility given that 3.33 is greater than 2.

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