Traci consumes two goods,lemonade and pretzels.Lemonade costs $1 per glass,and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 3.Pretzels cost $2 per bag.The relationship between the marginal utility Traci gets from eating a bag of pretzels and the number of bags she eats per month is as follows: If Traci is maximizing his utility,how many bags of potato chips does he buy each month?
A) 3
B) 4
C) 5
D) 6

Question

Traci consumes two goods,lemonade and pretzels.Lemonade costs $1 per glass,and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 3.Pretzels cost $2 per bag.The relationship between the marginal utility Traci gets from eating a bag of pretzels and the number of bags she eats per month is as follows:  If Traci is maximizing his utility,how many bags of potato chips does he buy each month?
A) 3 
B) 4 
C) 5 
D) 6

Quizplus · Accepted Answer

To maximize utility, Traci should allocate her income in such a way that the marginal utility per dollar spent is the same for all goods. 
MU/Price of Lemonade = MU/Price of Pretzels 
3/1 = 40/2 
3 = 20 
This is not true, so Traci should consume fewer glasses of lemonade and more bags of pretzels. 
MU/Price of Lemonade = MU/Price of Pretzels 
2/1 = 15/2 
2 = 7.5 
This still is not true, so Traci should consume fewer glasses of lemonade and more bags of pretzels. 
MU/Price of Lemonade = MU/Price of Pretzels 
1/1 = 10/2 
1 = 5 
This is true, so Traci should consume 4 bags of pretzels (10/2) and 1 glass of lemonade (1/1). 
Therefore, the answer is B) 4.

Traci Consumes Two Goods,lemonade and Pretzels