Question

Mr. Samuelson's current rates of purchase are such that the marginal utility of slacks is 18 and the marginal utility of ties for him is 5. If slacks and ties are priced at $12 and $2 respectively, it can be concluded that Mr. Samuelson:a) is spending too much on slacks and not enough on ties.b) is spending too much on ties and not enough on slacks. c) is spending his income in such a way as to maximize his satisfaction. d) should buy six times as many ties as he does slacks.

Answer 1

Answer:

a) is spending too much on slacks and not enough on ties.

Step-by-step explanation:

Mr. Samuelson's current rates of purchase are such that the marginal utility of slacks is 18 and the marginal utility of ties for him is 5.

The slacks and ties are priced at $12 and $2 respectively.

MarginalUtilityslacks/Priceslacks = MarginalUtilityties/Priceties

18/12= 5/2

=> 1.5=2.5

Hence, we can conclude that :

He is spending too much on slacks and not enough on ties.