Suppose Valerie is consuming lipstick (L) and eye shadow (E) and nothing else. MU_L = 40 and MU_E = 36. The price of eye shadow is $9, and the price of lipstick is $15. What should Valerie do?

Question

Quizplus · Accepted Answer

Valerie should consume more eye shadow and less lipstick because the marginal utility per dollar spent on eye shadow (MU_E = 36) is higher than that for lipstick (MU_L = 40) when considering their respective prices ($9 for eye shadow and $15 for lipstick). This suggests she would gain more satisfaction per dollar by reallocating her spending towards more eye shadow and less lipstick.

Suppose Valerie Is Consuming Lipstick (L) and Eye Shadow (E)