Scenario 4.1:
Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows:
MUc = Qd MUd = Qc
Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3.
-See Scenario 4.1. What quantity Qc will maximize Daniel's utility given the information above?

Question

Quizplus · Accepted Answer

To maximize utility, Daniel should allocate his income in such a way that the marginal utility per dollar spent on both goods is the same:

MUc/Pc = MUd/Pd

Substituting the given marginal utility functions and prices, we get:

Qd/3 = Qc/3

Simplifying this expression, we get:

Qd = Qc

Now, using the budget constraint:

3Qc + 3Qd = 240

Substituting Qd = Qc, we get:

6Qc = 240

Qc = 40

Therefore, the quantity of cake that will maximize Daniel's utility is 40.

Scenario 4.1: Daniel Derives Utility from Only Two Goods, Cake (Qc) and (Qc)