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 pretzels does he buy each month?

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 pretzels does he buy each month?

Quizplus · Accepted Answer

To maximize utility, Traci should consume pretzels to the point where the marginal utility of the last pretzel consumed equals the marginal utility per dollar spent on pretzels, which is the price of pretzels divided by the marginal utility of pretzels. At 4 bags of pretzels per month, the marginal utility of the last bag consumed is 2, and the price per marginal utility is $2/2 = $1, which is equal to the price of lemonade. Therefore, Traci should consume 4 bags of pretzels per month to maximize her utility.

Traci Consumes Two Goods, Lemonade and Pretzels