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26 December, 05:06

A consumer is currently purchasing three pairs of Jeans and five t-shirts per year. The price of jeans is $30 and the price of the t-shirts $10.00. At the current rate of consumption, the marginal utility of Jeans is 60 and the marginal utility of the t-shirt is 30. Is the consumer maximizing his utility. Would you advise him to buy more Jeans or more t-shirts? Use the formula for utility maximization to explain your answer.

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  1. 26 December, 08:34
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    Answer and Explanation:

    Given:

    Price of jeans = $30

    Price of T-shirt = $10

    Marginal utility of Jeans = 60

    Marginal utility of T-shirt = 30

    For maximum utility,

    Maximum marginal utility of commodity A = Maximum marginal utility of commodity B

    Maximum marginal utility of jeans = 60 / $30 = 2

    Maximum marginal utility of T-shirt = 30 / $10 = 3

    Under this situation,

    Marginal utility of jeans < Marginal utility of T-shirt

    2 < 3

    Therefore, he will buy more t-shirt to get maximum utilization.
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