The Smith family is allocating its monthly household expenditure between only two goods, foodandclothing. Suppose that the price of food is $12 per unit, and the price of clothing is $16 per unit and that the marginal utility that the family is receiving from its consumption of clothing is currently200. What is the family's marginal utility from its consumption of food if it is maximizing its utility?

Question

Quizplus · Accepted Answer

To maximize utility, the family should allocate their budget such that the marginal utility per dollar spent on each good is equal. Therefore, MU_food/Price_food = MU_clothing/Price_clothing. Solving for MU_food gives: MU_food/12 = 200/16, which simplifies to MU_food = 150.

The Smith Family Is Allocating Its Monthly Household Expenditure Between