Question

Optimal Choice of Milk and Honey. The price of milk is $2 per gallon, and the price of honey is $4 per jar. Hal's income is $16. Assuming that Hal spends all of his income on honey and milk, the combination of milk and honey that will maximize his total utility is _____ jars of honey and _____ gallons of milk.

Answer 1

Answer:

Assuming that Hal spends all of his income on honey and milk, the combination of milk and honey that will maximize his total utility is 2 jars of honey and 4 gallons of milk.

Explanation:

This question is missing a table that should be as follows:

quantity    total util.       marginal        quantity    total util.       marginal  

of milk        from milk     utility per $   of honey   from honey  utility per $

1                     32                  16                  1                  44                11

2                    60                  14                 2                 84                10

3                    84                  12                  3                120                 9

4                   104                  10                  4                152                 8

5                   120                   8                  5                180                 7

6                   132                   6                  6                204                6

7                   140                   4                   7                224                5

8                   144                   2                   8                240                4

We should purchase quantities that yield the same marginal utility per dollar spent, options are:

• 4 gallons of milk and 2 jars of honey ⇒ total cost = $8 + $8 = $16
• 5 gallons of milk and 4 jars of honey ⇒ total cost = $10 + $16 = $26
• 6 gallons of milk and 6 jars of honey ⇒ total cost = $12 + $24 = $36
• 7 gallons of milk and 8 jars of honey ⇒ total cost = $14 + $32 = $46