65. Jeffrey spends all of his income on warm-up suits and running shoes, and the

Question

65. Jeffrey spends all of his income on warm-up suits and running shoes, and the price of a warm-up suit is four times the price per pair of shoes. Then, in order to maximize total utility, Jeffrey should a. buy four times as many warm-up suits as pairs of running shoes b. buy four times as many pairs of running shoes as warm-up suits c. divide his income equally between warm-up suits and running shoes d. buy both items until the marginal utility of a warm-up suit is four times the marginal utility of a pair of running shoes e. buy both items until the marginal utility of a pair of running shoes is four times the marginal utility of a warm-up suit

Explanation / Answer

Let price of a pair of shoes = $x

It has been provided that price of warm up suit is 4 times the price of pair of shoes.

So,

Price of a warm up suit = $4x

Jeffery would be able to maximize his total utility, if following condition is fulfilled -

MUwarm up suit/Pwarm up suit = MUrunning shoes/Prunnig shoes

or,

MUwarm up suit/MUrunning shoes = Pwarm up suit/Prunnig shoes

MUwarm up suit/MUrunning shoes = 4x/x

MUwarm up suit = 4(MUrunning shoes)

Thus, in order to maximize total utility, Jeffery should buy both items until the marginal utility of a warm-up suit is four times the marginal utility of a pair of running shoes.

Hence, the correct answer is option (d).

Related Questions

Navigate

• Browse (All)
• Browse 6
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.