Table 10-4

-Refer to Table 10-4. For steak and cheese and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese and grilled chicken sandwiches. Which of the following statements is true?
A) If Mabel maximizes her utility she will buy three steak and cheese sandwiches and two grilled chicken sandwiches.
B) If Mabel was maximizing her utility when spending $14 and then received an additional $4, she would receive the most marginal utility per dollar if her next purchase was another grilled chicken sandwich.
C) Mabel will first buy two steak and cheese sandwiches; then with her remaining $6 she will buy three grilled chicken sandwiches.
D) To maximize her utility, Mabel will need a total of $36, the income needed to buy 6 steak and cheese sandwiches and 6 grilled chicken sandwiches.

Question

Table 10-4
 
-Refer to Table 10-4. For steak and cheese and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese and grilled chicken sandwiches. Which of the following statements is true?
A) If Mabel maximizes her utility she will buy three steak and cheese sandwiches and two grilled chicken sandwiches. 
B) If Mabel was maximizing her utility when spending $14 and then received an additional $4, she would receive the most marginal utility per dollar if her next purchase was another grilled chicken sandwich. 
C) Mabel will first buy two steak and cheese sandwiches; then with her remaining $6 she will buy three grilled chicken sandwiches. 
D) To maximize her utility, Mabel will need a total of $36, the income needed to buy 6 steak and cheese sandwiches and 6 grilled chicken sandwiches.

Quizplus · Accepted Answer

To maximize her utility, Mabel should allocate her $14 among the two goods in such a way that the ratio of their marginal utility per dollar is equal to each other. From the table, we can see that the MU/P ratio for the grilled chicken is greater than that of the steak and cheese sandwich for the first 2 units of consumption. Therefore, Mabel should buy 2 grilled chicken sandwiches and 1 steak and cheese sandwich for a total cost of $12, leaving $2 for additional consumption. If Mabel was to receive an additional $4, she should spend it on another grilled chicken sandwich because it has the highest MU/P ratio among the remaining options. Therefore, option B is the correct answer. Option A is incorrect because it does not take into account the MU/P ratio of the goods. Option C and Option D are incorrect because they exceed Mabel's budget of $14.

Table 10-4 -Refer to Table 10-4. for Steak and Cheese and Grilled