Question

Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal utility from an additional soft drink is $ 50 and his marginal utility from an additional slice of pizza is $ 30. If the price of a soft drink is $3 and the price of a slice of pizza is $2​, is Charley maximizing his utility?

Answer 1

Answer:

The answer is: No, Charley is not maximizing his utility.

Explanation:

In order for Charley to maximize his utility he should be buying only additional soft drinks.

A soft drink has a marginal utility of $50 and it costs $3. For every dollar Charley spends on an additional soft drink his utility will be $16.67.

A pizza slice has a marginal utility of $30 and it costs of $2. So for every dollar Charley spends on an additional slice of pizza his utility will be $15.