Which of the following combinations will be a utility-maximizing combination of perfume and magazines?

Question

Daphne · Answer

To determine the utility-maximizing combination, we need to compare the marginal utility per dollar for each item. Marginal Utility (MU) of Perfume = $12 Marginal Utility (MU) of Magazines = $4 Marginal Utility per Dollar of Perfume = MU of Perfume / Price of Perfume = $12 / $12 = 1 Marginal Utility per Dollar of Magazines = MU of Magazines / Price of Magazines = $4 / $4 = 1 Now, let's calculate the total utility for each combination: a) Total Utility = 1 x MU of Perfume + 9 x MU of Magazines = 1 x $12 + 9 x $4 = $12 + $36 = $48 b) Total Utility = 2 x MU of Perfume + 8 x MU of Magazines = 2 x $12 + 8 x $4 = $24 + $32 = $56 c) Total Utility = 2 x MU of Perfume + 4 x MU of Magazines = 2 x $12 + 4 x $4 = $24 + $16 = $40 d) Total Utility = 4 x MU of Perfume + 1 x MU of Magazines = 4 x $12 + 1 x $4 = $48 + $4 = $52 e) Total Utility = 3 x MU of Perfume + 2 x MU of Magazines = 3 x $12 + 2 x $4 = $36 + $8 = $44

Jane's Utility-Maximizing Combination of Perfume and Magazines

More Posts: