Question

A consumer buys bread (b) and milk (m) each week at price Rs. 10 and Rs. 8 respectively. Suppose that the consumer's current consumption of bread and milk is giving him MU (bread) = 80 and MU (milk) = 70 . Is the consumer buying the utility maximization combination of bread and milk? If not how should he reallocate his expenditures between the two goods to maximize utility? Draw diagram and explain

Answer 1

1) Combination of bread and milk isn`t the utility maximization of consumer buying, because when the combination is the utility maximization, then MUA / РА = MUB / Рв. In our case, 80/10 < 70/8.
2) A consumer need buy more milk and less bread, then marginal utility of milk will decrease and marginal utility of bread will increase.