-John either buys a steak or chicken when dining out. John's marginal utility for steak and chicken is given in the above table. If the price of a steak is $5 and the price of a chicken is $5 and John has $25 to spend on the two goods, what combination of steak and chicken will John consume to maximize his utility?
A) 1 steak and 4 chickens
B) 3 steaks and 2 chickens
C) 4 steaks and 3 chickens
D) 5 steaks and 6 chickens

Question

-John either buys a steak or chicken when dining out. John's marginal utility for steak and chicken is given in the above table. If the price of a steak is $5 and the price of a chicken is $5 and John has $25 to spend on the two goods, what combination of steak and chicken will John consume to maximize his utility?
A) 1 steak and 4 chickens 
B) 3 steaks and 2 chickens 
C) 4 steaks and 3 chickens 
D) 5 steaks and 6 chickens

Quizplus · Accepted Answer

To maximize utility, John should equalize the marginal utility per dollar spent on each good. Since both steak and chicken cost $5, John should choose the combination where the marginal utility of the last steak equals the marginal utility of the last chicken. With $25, he can buy 3 steaks and 2 chickens, which maximizes his utility given the prices and his budget.

-John Either Buys a Steak or Chicken When Dining Out