Answer to Question #114128 in Microeconomics for mohsen

Question

Rosaline consumes only turkey sandwiches and juice and she spends all her income on turkey sandwiches and juice. The marginal utility of her last turkey sandwich consumed is 200 utils and the marginal utility of her last juice consumed is 100 utils. The price of a turkey sandwich is $4 and the price of juice is $3.
1. Is Rosaline maximizing her level of utility? Justify.
2. Should Rosaline consume less or more turkey sandwiches to reach equilibrium? Justify.
3. If Rosaline consumes more Turkey Sandwiches and less Juice, her Marginal Utility for consuming Turkey Sandwiches is 160 utils and her Marginal Utility for consuming Juice is 120 utils.
Is this level of consumption maximizing the utility?

Answer 1

1 Rosaline is not maximazing her utility because the marginal utility per dollar is not the same for sandwiches and juice.Sandwiches have higher utility than juices.

Marginal utility per dollar for sandwiches

$Marginal utility \over price$

​

$200\over4$

$=50$

Marginal utility for juice

=$100\over 3$

​=$33.33$

2 .To reach an equilibrium ,rosaline should consume more of juice because it has a higher marginal utility per dollar.If he continues to consume juice she will reach a point of diminishing marginal return till it is equal to marginal utility for sandwhiches.

3.Thislevel is of marginal utility is maximazing because the marginal utility per dollar is equal for both sandwhich and juice.

Sandwiches

$160\over 4$

$=40$

Marginal utility per dollar for Juices

$120\over 3$

$=40$