Question

1. Suppose your friend in the class has decided to purchasse a pair of shoes that cost $150 or dress shirt that costs $100. If she ends up purchasing the dress shirt, then it is possible to conclude that the marginal utility of dress shirt is higher than the marginal utility of the additional pair of shoes. Explain this conclusion under what conditions of utility maximization in two goods case of consumption. 2. Consider the diagram below for a demand curve kayaking for a particular day in summer or fall in the Charles River of Boston with hourly rate of rental for maximum of 8 hours a day. Rental fee per hour $40 $16 og 2

Answer 1

1. Utility-maximizing condition under two goods case of consumption states the condition-

MU dress/MU shoes = P dress/P shoes = 100/150

Or

MU dress/P dress= MU shoes/P shoes

This will equate only when MU of dress is greater than MU of shoes.