Miles is three years old and his grandparents have given him money to spend at the toy store as a birthday present. miles' number one favorite thing to play with is building blocks. assume that miles' utility will increase by 100 units if he purchases a new set of building blocks and and it will cost him $50. his second favorite thing to play with is fire trucks. fire trucks cost $20 and each new fire truck improves miles' utility by 80 units. his third favorite toy is trains. trains improve his utility by 15 units and cost $5 each. miles does not have to spend all of his money at once, but wants to get as much happiness as possible from his money. if miles buys only one toy, which should he buy to maximize his utility? a fire truck building blocks a train which relationship between marginal utility (mu) and price (p) indicates that a consumer is maximizing his or her utility regarding spending on two goods? muxpx = muypy mux+muy = px+py mux−px = muy−py muxmuy = pypx

Assume Miles buys a set of building blocks at $50. This increases his utility by 100 units. But in $50, he can buy 2.5 units of fire trucks and his utility can increase by 80*2.5 = 200 units. In $50, he can buy 10 trains and his utility can increase by 15*10=150 units. Since by spending $50 on fire trucks Miles gets maximum utility, he will buy fire trucks.

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