Question

Beer and Tutoring.png
The table above shows Nathan's marginal utility per dollar for math tutors and beer each week. Each unit of beer costs $2.00 and each unit of tutoring costs $10.00. If Nathan has $50.00 to spend each week:

How many hours of tutoring will he buy?

How many units of beer will he buy?

Answer 1

If each unit of beer costs $2.00, each unit of tutoring costs $10.00 and Nathan has $50.00 to spend each week, then the optimal quantity of tutoring and beer to be bought is such, for which MUt/Pt = MUb/Pb or MUt/10 = MUb/2 and Pt*Qt + Pb*Qb = $50.