Bongiwe spends all of her income on warm-up suits and running shoes, and the price of a warm-up suit is four times as large as the price of a pair of shoes. Then, in order to maximise total utility, Bongiwe should

Question

Quizplus · Accepted Answer

In order to maximize total utility, Bongiwe should allocate her income between warm-up suits and running shoes in such a way that the marginal utility per unit of money spent on each item is equal. 
Assuming that Bongiwe spends her entire income on these two items, let P be the price of a pair of shoes. Then the price of a warm-up suit is 4P. 
Let MUshoes be the marginal utility of a pair of shoes and MUwups be the marginal utility of a warm-up suit. Bongiwe should continue to buy both items until the marginal utility per dollar spent on each item is equal. 
In other words, 
MUshoes / P = MUwups / 4P 
Simplifying this equation, we get: 
MUshoes = MUwups / 4 
This means that the marginal satisfaction of a warm-up suit is four times the marginal satisfaction of a pair of shoes. 
Therefore, Bongiwe should buy both items until the marginal satisfaction of a warm-up suit is four times the marginal satisfaction of a pair of running shoes. So, the best choice is D.

Bongiwe Spends All of Her Income on Warm-Up Suits and Running