Traci consumes two goods, lemonade and pretzels. Lemonade costs $2 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 4. Pretzels cost $3 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 her utility, how many bags of pretzels does she buy each month?

Question

Traci consumes two goods, lemonade and pretzels. Lemonade costs $2 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 4. Pretzels cost $3 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 her utility, how many bags of pretzels does she buy each month?

Quizplus · Accepted Answer

In order to maximize utility, Traci needs to allocate her spending in such a way that the marginal utility per dollar spent is the same for both goods. The marginal utility per dollar spent on lemonade is 4/2 = 2. The table shows that the marginal utility per dollar spent on pretzels is highest for the fourth bag, at 11/3. Therefore, Traci should buy four bags of pretzels per month to maximize her utility.

Traci Consumes Two Goods, Lemonade and Pretzels