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Figure: Comic Books and Coffee 2

-(Figure: Comic Books and Coffee 2) Refer to the figure. If a consumer has $2 to spend on comic books (priced at $1 per comic book) and coffee (price at $1 per cup) should the she buy two cups of coffee?
A) Yes, buying two cups of coffee maximizes her total utility.
B) Yes, because the marginal utility of the second comic book is less than the marginal utility of the second cup of coffee.
C) No, she should put back one cup of coffee (losing 16 utils) and replace it with a comic book (gaining 18 utils).
D) No, she should buy two comic books to maximize utility.

Question

Use the following to answer questions:
Figure: Comic Books and Coffee 2  
 
-(Figure: Comic Books and Coffee 2) Refer to the figure. If a consumer has $2 to spend on comic books (priced at $1 per comic book) and coffee (price at $1 per cup) should the she buy two cups of coffee?
A) Yes, buying two cups of coffee maximizes her total utility. 
B) Yes, because the marginal utility of the second comic book is less than the marginal utility of the second cup of coffee. 
C) No, she should put back one cup of coffee (losing 16 utils) and replace it with a comic book (gaining 18 utils). 
D) No, she should buy two comic books to maximize utility.

Quizplus · Accepted Answer

The consumer should compare the marginal utility of the last unit of each good purchased. The marginal utility of the second cup of coffee is 7 utils, while the marginal utility of the second comic book is 5 utils. Therefore, the consumer should put back one cup of coffee (losing 16 utils) and replace it with a comic book (gaining 18 utils). This would result in a total utility of 23 utils (8 utils from the first cup of coffee, 18 utils from the comic book, and -3 utils from the foregone cup of coffee).

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