Question

Martha's current marginal utility from consuming orange juice is 100 utils per ounce and her marginal utility from consuming coffee is 50 utils per ounce. If orange juice costs $0.25 per ounce and coffee costs $0.20 per ounce, is Martha maximizing her total utility from the two beverages?At her current level of consumption, Martha receives: _____ utils per dollar spent on orange juice.At her current level of consumption Martha receives: _____ utils per dollar spent on coffee.Therefore Martha _____ maximizing her total utility because Muoj/poj is _____ MUc/Pc.

Answer 1

Answer:

(a) 400 utils per dollar spent on orange juice.

(b) 250 utils per dollar spent on coffee.

(c) IS NOT; NOT EQUAL TO

Explanation:

(a) At her current level of consumption,

Martha receives:

= Marginal utility of consuming orange ÷ orange juice costs per ounce

= 100 ÷ 0.25

= 400 utils per dollar spent on orange juice.

(b) At her current level of consumption,

Martha receives:

= Marginal utility of consuming coffee ÷ coffee costs per ounce

= 50 ÷ 0.20

= 250 utils per dollar spent on coffee.

(c) Therefore, Martha IS NOT maximizing her total utility because MU of oranges/Price of oranges is NOT EQUAL TO to MU of coffee/Price of coffee.