Professor Makrung spends his entire weekly income of $700 on economics books (E) and coffee (C).The price of an economics book (PE) is $50 and the price of a cup of coffee (PC) is $2.If the professor buys 10 economics books and 50 cups of coffee per week, he finds that MUE = 75 and MUC = 3.This implies that a consumption bundle consisting of 10 economics books and 50 cups of coffee per week maximizes the professor's utility.

Question

Quizplus · Accepted Answer

The utility is maximized when the marginal utility per dollar spent is equal for all goods. Here, MUE/PE = 75/50 = 1.5 and MUC/PC = 3/2 = 1.5, so the utility is maximized. However, the professor's budget is $700, and the cost of 10 books and 50 coffees is $600, indicating he can still spend more to potentially increase utility.

Professor Makrung Spends His Entire Weekly Income of $700 on Economics