Question

Suppose for a given consumer the marginal utility (MU) of a pizza is 100 utils and the MU of a hamburger is 80 utils, and that the price of a pizza is $15 and the price of a hamburger is $8. Given this information, the consumer ___________ in equilibrium, and should _________________.

Answer 1

Answer:

is not , consume more of hamburgers

Explanation:

A consumer is said to have achieved equilibrium when within his budget constraint, he purchases that combination of two goods which yield maximum satisfaction to him.

The equation for consumer equilibrium for two products is given by

$\frac{MU_{x} }{P_{x} } = \frac{MU_{y} }{P_{y} }$

In the given case, $\frac{MU_{x} }{P_{x} }$ = $\frac{100}{15}$ = $\frac{20}{3}$ = 6.666

                            $\frac{MU_{y} }{P_{y} }$ = $\frac{80}{10}$    = 8

wherein, x= pizza

              y= hamburger

As is evident, the marginal utility per dollar spent is greater in case of a hamburger, the consumer is not in a state of equilibrium.

Thus, he should consume more units of Hamburgers in order to maximize his utility.