Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be:

A) 2,000 units of utility.

B) 500 units of utility.

C) 100 units of utility.

D) 80 units of utility.

Question

Business

Adolfo Moss

19 January, 06:05

Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be:

A) 2,000 units of utility.

B) 500 units of utility.

C) 100 units of utility.

D) 80 units of utility.

+1

Answers (1)

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Shaniya Garner · Answer 1

80 units

Explanation:

Given:

Price: $25 we have: 100 units Price: $20, how many units to maximize the total utility

Let X is the number of units we need to find

As we know that, the law of equal-marginal utility a consumer spends his or her income among goods so that utilities receive from the amount spent is equal. So we use a simple rule of three:

$25 100 units of utility

$20 X

25X = 20*100

X = 80 units

Hope it will find you well.