1. Suppose your friend in the class has decided to purchasse a pair of shoes that...

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1. Suppose your friend in the class has decided to purchasse a pair of shoes that cost $150 or dress shirt that costs $100. I

business economics

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Answer 1

Answer #1

A consumer can maximize utility when the following condition is fulfilled.

MU_X / P_X = MU_Y / P_Y .........= MU_N / P_N

This utility maximization condition states that a consumer can maximize total utility when the marginal utility per unit of dellar spend on each good are equal.

When the consumer purchases more quantities of a good, the marginal utility from the additional consumption diminishes, which we called diminishing marginal utility.

In the above example, when your friend end up with purchasing a shirt, it means you friend has not yet maximizes his total utility, therefore, it is concluded that marginal utility of shirt is higher than the marginal utility of a pair of shoes.

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Answer 2

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