The relationship between the marginal utility that Casey gets from eating ice cream sundaes and the number of ice cream cones he eats per week is as follows: Casey receives 3 units of utility from the last dollar spent on each of the other goods he consumes. If ice cream sundaes cost $4 each, how many ice cream sundaes will he consume per month if he maximizes utility?
A)2
B)3
C)4

Question

The relationship between the marginal utility that Casey gets from eating ice cream sundaes and the number of ice cream cones he eats per week is as follows:  Casey receives 3 units of utility from the last dollar spent on each of the other goods he consumes. If ice cream sundaes cost $4 each, how many ice cream sundaes will he consume per month if he maximizes utility?
A)2 
B)3 
C)4

Quizplus · Accepted Answer

To maximize utility, Casey should consume ice cream sundaes until the marginal utility per dollar spent on ice cream sundaes is equal to the marginal utility per dollar spent on other goods. From the given relationship, we can see that Casey's marginal utility from the first ice cream sundae is 60, and the marginal utility from the second sundae is 50. This means that Casey's marginal utility per dollar spent on the first sundae is 15 (60/4), and the marginal utility per dollar spent on the second sundae is 12.5 (50/4). Since 15 is greater than the marginal utility of 3 he receives from the other goods, he will continue to consume sundaes until the marginal utility per dollar spent on sundaes falls to 3. The third sundae provides a marginal utility of 40, so the marginal utility per dollar spent on the third sundae is 10 (40/4), which is still greater than the marginal utility of 3 from the other goods. However, the fourth sundae only provides a marginal utility of 28, so the marginal utility per dollar spent on the fourth sundae is 7 (28/4), which is less than the marginal utility of 3 from the other goods. Therefore, Casey will consume 3 ice cream sundaes per week, or 12 per month, to maximize his utility.

The Relationship Between the Marginal Utility That Casey Gets from Eating