Question

Sam spends all of his income on textbooks and hot dogs. The price of a textbook is $40 and the price of a hot dog is $0.5. If Sam is maximizing his utility and the marginal utility he derives from the last textbook he purchases is 400, then the marginal utility he derives from his last hot dog purchased must be:___________. A) 5 B) 10 C) 20 D) 400

Answer 1

Answer:

A) 5

Explanation:

Calculation for the marginal utility

Based on the information given the utility that sam will have to derive when he consume two goods will be maximum when:

Marginal Utility (textbooks)/Price of textbook = Marginal Utility (hotdogs)/Price of hotdogs

Hence,

400/40=Marginal Utility (hotdogs)0.5

Therefore for:

Marginal Utility (hotdog) = 10*0.5

Marginal Utility (hotdog)= 5

Therefore the marginal utility he derives from his last hot dog purchased must be: 5