Question

Toby’s current marginal utility from consuming peanuts is 100 utils per ounce and his marginal utility from consuming cashews is 200 utils per ounce. If peanuts cost 10 cents per ounce and cashews cost 25 cents per ounce, is Toby maximizing his total utility from the kinds of nuts?

Answer 1

Answer:

Toby is not maximizing his utility because MUp/Pp > MUc/Pc

Explanation:

given data

marginal utility consuming peanuts =  100 utils per ounce  

marginal utility  consuming cashews = 200 utils per ounce

peanuts cost = 10 cents per ounce  

cashews cost = 25 cents per ounce

solution

we know that Toby will have maximize utility when here

Marginal utility of peanut ÷  price of peanut  = Marginal utility of cashew  ÷ cash   ..........................1

MU (p) ÷ P (p) = MU (c) ÷ P (c)

put here value

$\frac{100}{10} = \frac{200}{25}$

but here

10 > 8

so we can say Toby is not maximizing his utility because MUp/Pp > MUc/Pc

Answer 2

Answer:

NO.

Explanation:

Given that,

Marginal utility from consuming peanuts = 100 utils per ounce

Marginal utility from consuming cashews = 200 utils per ounce

Cost of peanuts = 10 cents per ounce

Cost of cashews = 25 cents per ounce

Toby is maximizing his total utility from the kinds of nuts at a point where the marginal utility per cent for peanuts and marginal utility per cent for cashews are equalize.

Marginal utility per cent for peanuts:

$=\frac{Marginal\ utility\ from\ consuming\ peanuts}{Cost\ of\ peanuts}$

$=\frac{100}{10}$

= 10

Marginal utility per cent for cashews:

$=\frac{Marginal\ utility\ from\ consuming\ cashews}{Cost\ of\ cashews}$

$=\frac{200}{25}$

= 8

Therefore,

Toby is not maximizing his total utility from the kinds of nuts because the marginal utility per cent for peanuts is greater than the marginal utility per cent for cashews . So, there is a need to consume more of peanuts because the marginal utility per cent for peanuts is higher.