Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. Table 19.3
Michael's Utility Schedule
$\begin{array} { | c | r | c | c | c | c | }
\hline \begin{array} { c }
\text { Units of } \
\text { Cola }
\end{array} & \text { TU of Cola } & \begin{array} { c }
\text { MU of } \
\text { Cola }
\end{array} & \begin{array} { c }
\text { Units of } \
\text { Pretzels }
\end{array} & \begin{array} { c }
\text { TU of } \
\text { Pretzels }
\end{array} & \begin{array} { c }
\text { MU of } \
\text { Pretzels }
\end{array} \
\hline 1 & 46 & 40 & 1 & 30 & 30 \
\hline 2 & & 32 & 2 & & 20 \
\hline 3 & 96 & 24 & 3 & 66 & 16 \
\hline 4 & 112 & & 4 & 78 & \
\hline 5 & 124 & & 5 & 84 & \
\hline
\end{array}$ Refer to Table 19.3.Suppose Michael has $28 to spend on cola and pretzels.What combination should he purchase in order to maximize his utility?
A)Three colas and four pretzels.
B)One cola and five pretzels.
C)Three colas and one pretzel.
D)Two colas and three pretzels.

Question

Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. Table 19.3
Michael's Utility Schedule
$\begin{array} { | c | r | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Units of } \
\text { Cola }
\end{array} & \text { TU of Cola } & \begin{array} { c } 
\text { MU of } \
\text { Cola }
\end{array} & \begin{array} { c } 
\text { Units of } \
\text { Pretzels }
\end{array} & \begin{array} { c } 
\text { TU of } \
\text { Pretzels }
\end{array} & \begin{array} { c } 
\text { MU of } \
\text { Pretzels }
\end{array} \
\hline 1 & 46 & 40 & 1 & 30 & 30 \
\hline 2 & & 32 & 2 & & 20 \
\hline 3 & 96 & 24 & 3 & 66 & 16 \
\hline 4 & 112 & & 4 & 78 & \
\hline 5 & 124 & & 5 & 84 & \
\hline
\end{array}$ Refer to Table 19.3.Suppose Michael has $28 to spend on cola and pretzels.What combination should he purchase in order to maximize his utility?
A)Three colas and four pretzels.
B)One cola and five pretzels.
C)Three colas and one pretzel.
D)Two colas and three pretzels.

Quizplus · Accepted Answer

To maximize utility, Michael should equalize the marginal utility per dollar spent on each good. The marginal utility per dollar for cola is highest at 2 units (32/8 = 4), and for pretzels, it is highest at 3 units (16/4 = 4). Buying 2 colas ($16) and 3 pretzels ($12) uses the entire $28 budget and maximizes utility.

Assume the Price of Cola Is $8 Per Unit and the Price