Answer to Question #232916 in Microeconomics for NKO

Question

Beer costs R10 per bottle and cigarettes cost R40 per packet. Suppose Vongani buys 8 bottles of beer and 3 packets of cigarettes and that his marginal utility from beer is then 20 utils and that from cigarettes 35 utils

Answer 1

In equilibrium:

$\frac{MU1} {P1} = \frac{MU2} {P2}$

and

$P1 \times Q1 + P2 \times Q2 = I$

In our case $20/10>35/40$ , so John should consume more beer and less cigarettes to maximize his utility.