Traci consumes two goods, lemonade and pretzels. Lemonade costs $2 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 4. Pretzels cost $3 per bag. The relationship between the marginal utility Traci gets from eating a bag of pretzels and the number of bags she eats per month is as follows: If Traci is maximizing her utility, how many bags of pretzels does she buy each month?

Question

Traci consumes two goods, lemonade and pretzels. Lemonade costs $2 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 4. Pretzels cost $3 per bag. The relationship between the marginal utility Traci gets from eating a bag of pretzels and the number of bags she eats per month is as follows:  If Traci is maximizing her utility, how many bags of pretzels does she buy each month?

Quizplus · Accepted Answer

To maximize her utility, Traci should equate the marginal utility per dollar spent on each good.

The marginal utility per dollar spent on lemonade is 4/2 = 2.

To find the marginal utility per dollar spent on pretzels, we need to calculate the marginal utility per bag and divide it by the price per bag:

MU/Price for 1 bag = 8/3 = 2.67 
MU/Price for 2 bags = 6/6 = 1 
MU/Price for 3 bags = 4/9 = 0.44 
MU/Price for 4 bags = 2/12 = 0.17 
MU/Price for 5 bags = 0/15 = 0

The marginal utility per dollar spent on pretzels is highest for 3 bags, at 0.44. Therefore, Traci should buy 3 bags of pretzels each month to maximize her utility.

Traci Consumes Two Goods, Lemonade and Pretzels