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irina1246 [14]
3 years ago
8

In spending all his income on beer and pizza, Fred finds that the marginal utility of the last pizza he consumed is 8, and the m

arginal utility of the last bottle of beer is 4. The price of a bottle of beer is $1.50. If Fred has maximized his utility, the price of pizza must be:________.
A. S0.75
B. $1.00
C. $3.00
D. $4.50 98.
Business
2 answers:
bagirrra123 [75]3 years ago
6 0

Answer:

C) $3.00

Explanation:

since Fred has been able to maximize his utility by consuming both pizza and beer, the marginal utility per dollar of pizza and beer must be equal.

The price of a bottle of beer is $1.50 and Fred obtains 4 utils from consuming it. If the marginal utility of pizza is 8 units, it is equivalent to 2 beers. So the price of pizza must equal $1.50 x 2 = $3

maksim [4K]3 years ago
6 0

Answer:

C) $3.00

Explanation:

Utility Maximization can be mathematically illustrated as Marginal Utility of product X ÷ price of product X = Marginal Utility of product Y ÷ price of product Y. Utility maximization involves maximizing utility according to one's income. Here, the products are beer and pizza. The marginal utility of pizza is 8 and its price is unknown which we will assume as "a" while the marginal utility of beer is 4 and its price is $1.50. Using our formula, we replaced the words with figures hence, 4 ÷ $1.50 = 8 ÷ a. We crossmultiply the figures are left with 4a = $12.00. A is then, $1.200 ÷ 4 = $3.00. Therefore, the price of pizza is $3.00

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