Bill uses his entire budget to purchase Pepsi and hamburgers, and he currently purchases no Pepsi and 6 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 2, and his marginal utility from hamburgers is 6. Is Bill's current consumption decision optimal?

Question

Business

Libby

11 November, 21:58

Bill uses his entire budget to purchase Pepsi and hamburgers, and he currently purchases no Pepsi and 6 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 2, and his marginal utility from hamburgers is 6. Is Bill's current consumption decision optimal?

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Answers (1)

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Ty Thompson · Answer 1

Yes, Bill's current consumption is optimal.

Explanation:

Bill's marginal utility per dollar is greater for hamburgers than Pepsi:

marginal utility per dollar of Pepsi = 2 utils per $1 marginal utility per dollar of hamburgers = 6 / $2 = 3 utils per dollar

Since Bill's marginal utility per dollar for hamburgers is higher than for Pepsi, he should keep consuming more hamburgers and less Pepsi.