The price of shrimp is $10.00 per pound and the price of lobster is $15.00 per pound.The marginal utility to Mike of pound of shrimp consumed is 60 utils.If Mike maximizes his satisfaction by consuming both shrimp and lobster,we would expect the marginal utility of the last pound of lobster consumed to equal:
A) 40 utils
B) 60 utils
C) 90 utils
D) 150 utils

Question

Quizplus · Accepted Answer

To determine the best combination of shrimp and lobster to maximize satisfaction, we need to compare the marginal utility per dollar of each. The marginal utility per dollar of shrimp is 60/10=6 utils per dollar. The marginal utility per dollar of lobster can be calculated assuming that it's greater than the marginal utility per dollar of shrimp, because if that was not the case, Mike would just consume shrimp and not lobster. Let's assume that the marginal utility per dollar of lobster is 10 utils, then we get 10/15= 0.67 utils per dollar.

To maximize satisfaction, Mike should consume both shrimp and lobster until the marginal utility per dollar of each is equal, because at that point, he cannot increase satisfaction anymore. So, set the two marginal utility per dollar equations equal to each other:

60/10 = x/15, where x is the marginal utility of the final pound of lobster consumed.

Solving for x, we get x=90 utils.

Thus, the marginal utility of the last pound of lobster consumed is 90 utils. Therefore, the best choice is to consume shrimp and lobster until the marginal utility per dollar of shrimp and lobster are equal and the marginal utility of the last pound of lobster consumed should be 90 utils.

The Price of Shrimp Is $10