An individual consumes only hamburgers and milkshakes.The last hamburger consumed yields 25 utils of satisfaction,while the last milkshake consumed yields 10 utils of satisfaction.If the price of a hamburger is $2.50 and the price of a milkshake is $1.50,we can conclude that:
A) the consumer should consume more hamburgers and fewer milkshakes.
B) the consumer should consume more milkshakes and fewer hamburgers.
C) the consumer has achieved consumer equilibrium.
D) the consumer should buy only milkshakes.

Question

Quizplus · Accepted Answer

To determine the best choice, we need to compare the marginal utility per dollar spent on hamburgers and milkshakes. The marginal utility per dollar spent on hamburgers is 10 utils per dollar ($2.50 ÷ 25 utils) and the marginal utility per dollar spent on milkshakes is 6.67 utils per dollar ($1.50 ÷ 10 utils). Therefore, the consumer should consume more hamburgers and fewer milkshakes to increase their overall satisfaction. This is because the consumer gets more satisfaction per dollar spent on hamburgers compared to milkshakes. The consumer has not achieved consumer equilibrium as they can still increase their overall satisfaction by adjusting their consumption.

An Individual Consumes Only Hamburgers and Milkshakes