Basil is maximizing his utility from consuming tea and crumpets.If the marginal utility of the last crumpet was 32 units of utility and the prices of tea and crumpets are $4 and $8, respectively, what was the marginal utility of the last cup of tea Basil consumed?
A)2 units of utility
B)12 units of utility
C)$6
D)128 units of utility
E)16 units of utility

Question

Quizplus · Accepted Answer

To maximize utility, the marginal utility per dollar spent should be equal for both goods. For crumpets: MU_crumpet/Price_crumpet = 32/8 = 4. For tea: MU_tea/Price_tea = MU_tea/4. Setting them equal gives MU_tea/4 = 4, so MU_tea = 16.

Basil Is Maximizing His Utility from Consuming Tea and Crumpets