Terence has $50 per week to spend on Subway sandwiches and milkshakes.The price of a Subway sandwich is $5 and the price of a milkshake is $4.He buys 6 sandwiches and 5 milkshakes.The marginal utility of the 6th sandwich = 25 and the marginal utility of the 5th milkshake = 24.Which of the following is true?
A)He is not maximizing his utility and should buy more milkshakes.
B)He is maximizing his utility.
C)He is not maximizing his utility and should buy more Subway sandwiches.
D)He is not maximizing his utility because he is not spending all of his income.

Question

Quizplus · Accepted Answer

The marginal utility per dollar spent on the 6th sandwich is 25/5 = 5, and for the 5th milkshake is 24/4 = 6. Since the marginal utility per dollar is higher for milkshakes, he should buy more milkshakes to maximize utility.

Terence Has $50 Per Week to Spend on Subway Sandwiches