Exhibit 10-1 A consumer is faced with choosing between hamburgers and milkshakes that are priced at $2 and $1,respectively.The marginal utility derived from each of the two goods is as follows:
Refer to Exhibit 10-1.How many hamburgers and milkshakes will be consumed each if the consumer maximizes his utility subject to $11 of income each week?
A) 5 hamburgers and 1 milkshake
B) 1 hamburger and 5 milkshakes
C) 4 hamburgers and 3 milkshakes
D) 3 hamburgers and 4 milkshakes

Question

Exhibit 10-1 A consumer is faced with choosing between hamburgers and milkshakes that are priced at $2 and $1,respectively.The marginal utility derived from each of the two goods is as follows:
 Refer to Exhibit 10-1.How many hamburgers and milkshakes will be consumed each if the consumer maximizes his utility subject to $11 of income each week?
A) 5 hamburgers and 1 milkshake 
B) 1 hamburger and 5 milkshakes 
C) 4 hamburgers and 3 milkshakes 
D) 3 hamburgers and 4 milkshakes

Quizplus · Accepted Answer

To maximize utility subject to the budget constraint, the consumer should allocate their entire budget on the burgers and milkshakes that provide the highest marginal utility per dollar spent. In this case, the marginal utility per dollar spent on hamburgers is 20 ($2/100) and the marginal utility per dollar spent on milkshakes is 40 ($4/100). Therefore, the consumer should spend 3 dollars on hamburgers (3 x $2 = $6) and 8 dollars on milkshakes (8 x $1 = $8), for a total of $14 spent out of the $11 budget which is impossible. To stay within budget the consumer can buy 4 hamburgers ($8) and 3 milkshakes ($3), for a total of $11, which maximizes their utility. Therefore, the answer is C, 4 hamburgers and 3 milkshakes.

Exhibit 10-1 a Consumer Is Faced with Choosing Between Hamburgers