Traci consumes two goods, lemonade and pretzels. Lemonade costs $1 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 3. Pretzels cost $2 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 his utility, how much does she spend on pretzels each month?

Question

Traci consumes two goods, lemonade and pretzels. Lemonade costs $1 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 3. Pretzels cost $2 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 his utility, how much does she spend on pretzels each month?

Quizplus · Accepted Answer

To maximize utility, Traci will consume goods until the marginal utility per dollar spent is equal for both goods. In this case, the marginal utility per dollar spent on lemonade is 3, while the marginal utility per dollar spent on pretzels is 8/2 = 4. 
Thus, Traci will spend $2 on pretzels (1 bag) which will give her a marginal utility of 8. Since one bag of pretzels costs $2, to achieve a total marginal utility of 8, she will need to spend $8 on pretzels each month (four bags). Therefore, the correct answer is C) $8.

Traci Consumes Two Goods, Lemonade and Pretzels