Question

Mr.Chan has an income of $20 that he is spending on donuts andcheese in such amounts that he derives 25 utils of satisfactionfrom the donuts and 25 utils of satisfaction from the cheese. ONthe basis of this information we:
A.cannot say whether or not Chan is buying donuts and cheese inquilibrium amounts.

B.can say that Chan should buy more cheese and fewer donuts.

C.can say that Chan should buy more donuts and less cheese.

D.can say that Chan is buying the utility-maximizing amountsdonuts and cheese.

Answer 1

Answer: D. can say that Chan is buying the utility-maximizing amounts of donuts and cheese.

Explanation: Utility is the amount of satisfaction derived from consuming a product or service. In the question above, Chan is deriving the same amount of satisfaction/utillity (25 utils) from the quantity of donuts and cheese that he buys. There is no reason to change the ratio in which he buys them.

If he was deriving more satisfaction from one of the two, we could say that he should buy more of that item to maximize his satisfaction. But this is not the case.