Question

How to max total utility given a table of two marginal utilities and quantities

quantity per month Utility from DVDs Utility from spy novels
1 60 35
2 110 60
3 150 75
4 180 85
5 200 90
6 206 92


If the price of a DVD is​ $20 and the price of a spy novel is​ $10, and Jason has​ $60 to spend on these two​ goods, how many of each does he buy if he is maximizing​ utility?

Answer 1

To maximize total utility, Jason should buy 6 DVDs and 1 spy novel.

Step-by-step explanation:

In order to maximize utility, we need to consider the marginal utility per dollar for each item. The marginal utility per dollar is the amount of additional utility received divided by the price of the product.

Given that the price of a DVD is $20 and the price of a spy novel is $10, we can calculate the marginal utility per dollar for each item using the given table. The marginal utility per dollar for DVDs ranges from 3 to 10, while the marginal utility per dollar for spy novels ranges from 3.5 to 9.

Based on these calculations, Jason should buy 6 DVDs and 1 spy novel in order to maximize his total utility.