Question

When dvds and hamburgers were the same price, mavis consumed 3 hamburgers and 5 dvds, and mavis received 10 utils from the last hamburger and 15 utils from the last dvd consumed. what should be mavis' consumption strategy? consume more dvds and fewer burgers consume more burgers and fewer dvds consume less of both items consume more of both items?

Answer 1

Answer:

consume more dvds and fewer burgers

Explanation:

we are not given a price for hamburgers and DVDs but in order to understand the question we can assign them $10 each.

• Mavis consumed 3 hamburgers, the marginal utility from last hamburger = 10, so utils per dollar = 10 / $10 = 1
• She also consumed 5 DVDs, the marginal utility from the last DVD = 15, so utils per dollar = 15 / $10 = 1.5

This means that Mavis should consume more DVDs until the utils per dollar equal the utils per dollar of hamburgers, or consumer less hamburgers until the utils per dollar increase to match the DVD's. As Mavis consumes more DVDs, her marginal utility will diminish, while consuming less hamburgers will increase the marginal utility obtained from them.