Question

For utility maximization, consumers will purchase different consumption bundles until their marginal utility per dollar are equal. So, when the marginal utility of beef is 10 at price of $5 per lb and the marginal utility of chicken is 8 at price of $3 per lb, will you purchase more beef or chicken? Explain briefly about your decision.

Answer 1

For utility maximization, consumers will purchase different consumption bundles until their marginal utility per dollar are equal.

Marginal utility per dollar spent on beef =10/5=2

Marginal utility per dollar spent on chicken = 8/3=2.67

Since Marginal utility per dollar spent on chicken is greater than that of beef , and we to reach equilibrium we have to equate the two, so you will purchase more chicken because as you purchase more chicken the marginal utility from chicken will fall and then the two will be equated.