Question

Suppose that at Miles's current level of consumption, his marginal utility from a pizza is 10 utils, and his marginal utility from a pint of ice cream is 16 utils. If the price of a pizza is $8, and the price of a pint of ice cream is $5, is Miles maximizing his utility?

Answer 1

Miles is not maximizing his total utility.

Step-by-step explanation:

Miles consumes pizza and ice cream.

The price of a pizza is $8, and the price of a pint of ice cream is $5.

Marginal utility from a pizza is 10 utils, and marginal utility from a pint of ice cream is 16 utils.

The total utility will be maximized when the ratio of marginal utility and price for both the goods are equal.

`(MU\ Pizza)/(P\ Pizza)`

=
`(10)/(8)`

= 1.25

`(MU\ Ice\ cream)/(P\ Ice\ cream)`

=
`(16)/(5)`

= 3.2

The ratio is not equal which implies that utility is not being maximized. In order to maximize total utility Miles should shift consumption from ice cream to pizza.