Kalia is currently spending all of her weekly income purchasing the two goods th

Question

Kalia is currently spending all of her weekly income purchasing the two goods that she likes hamburgers and fries. She is currently purchasing 10 hamburgers and 5 large fries. She receives 40 utils from her 10th hamburger and 20 utils from her 5th large fry. The price of hamgburgers is $6, and the price of fries is $2. Is kalia maximizing her utility, and if not, what should she do? a. Kalia should buy fewer hamburgers and more fries. b. Kalia should buy more hamburgers and fewer fries. c. Kalia should buy fewer hamburgers and fewer fries. d. Kalia should buy more hamgburgers and more fries. e. There is not enough information to tell what kalia should do.

Explanation / Answer

To check whether Kalia is miaximizing her utility we need to be sure that:

MU(hambuger)/Price (hamburger) = MU(fry)/Price (fry)

here MU(hambuger)/Price (hamburger) = 40/6 = 7.3

and MU(fry)/Price (fry) = 20/2 = 10

Since MU(hambuger)/Price (hamburger) < MU(fry)/Price (fry) (NOT MAXIMIZING)

She should buy more hamburgers so sthat MU(hambuger)/Price (hamburger) = MU(fry)/Price (fry)

answer is: b. Kalia should buy more hamburgers and fewer fries

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