Jerry consumes two goods, hamburgers and ice cream sandwiches. He has maximized his utility given his income. Ice cream sandwiches costs $2, and he consumes them to the point where the marginal utility he receives is 6. Hamburgers cost $4, and the relationship between the marginal utility that Jerry gets from eating hamburgers and the number he eats per month is as follows: How many hamburgers does Jerry buy each month?

Question

Jerry consumes two goods, hamburgers and ice cream sandwiches. He has maximized his utility given his income. Ice cream sandwiches costs $2, and he consumes them to the point where the marginal utility he receives is 6. Hamburgers cost $4, and the relationship between the marginal utility that Jerry gets from eating hamburgers and the number he eats per month is as follows:  How many hamburgers does Jerry buy each month?

Quizplus · Accepted Answer

To maximize utility, Jerry must allocate his income so that the marginal utility per dollar is equalized for both goods.

For ice cream sandwiches: 
MU/Price = 6/2 = 3

For hamburgers: 
MU/Price = 10/4 = 2.5

Since 3 is greater than 2.5, Jerry should buy more ice cream sandwiches and fewer hamburgers. Therefore, he will buy the quantity of hamburgers where the MU/Price equals 3: 
MU/Price = 9/3 = 3

Using the chart, we can see that at a quantity of 3 hamburgers, the marginal utility per dollar is exactly equal to 3. Therefore, Jerry will buy 3 hamburgers per month.

Jerry Consumes Two Goods, Hamburgers and Ice Cream Sandwiches