Question

Suppose Valentina is maximizing his utility from consuming milk and baby formula. The price of a 8oz bottle of milk is $34 and the price of a 8oz bottle of baby formula is $27. If the marginal utility of the last 8oz bottle of milk was 65 units, what was the marginal utility of the last 8oz bottle of baby formula she purchased? (hint: refer to the optimal choice condition for a well-behaved utility function

Answer 1

Utility maximizing condition:

In order to maximize utility a consumer consumes that quantity of X and Y such that MU_X/P_X = MU_Y/P_Y

where MU represents marginal utility and P represents prices.

here consumer is consuming milk and baby formula.

Let Milk be denoted by M and baby Formula be denoted by b.

Hence in order to maximize utility MU_M/P_M = MU_B/P_B

Here MU_M = marginal utility of 8oz bottle of milk = 65

P_M = 34 , P_B = 27 and we have to calculate MU_B

MU_M/P_M = MU_B/P_B => 65/34 = MU_B/27 => MU_B = 51.62

Hence, the marginal utility of the last 8oz bottle of baby formula she purchased = 51.62