Question

Mrs. Simpson buys loaves of bread and quarts of milk each week at prices of $1 and 80 cents, respectively. At present she is buying these products in amounts such that the marginal utilities from the last units purchased of the two products are 80 and 70 utils, respectively. Mrs. Simpson should buy

1) more milk and less bread
2) more bread and more milk
3) less milk and more bread
4) less bread and less milk

Answer 1

Mrs. Simpson should buy more milk and less bread to equate the marginal utility per dollar spent on both goods, according to the equimarginal principle in economics.

Step-by-step explanation:

In the context of Mrs. Simpson's purchase decisions regarding bread and milk, economic theory suggests optimizing her utility by applying the equimarginal principle. This principle dictates that a consumer should allocate their budget in a way that the ratio of marginal utility to price is equal across all goods. In this scenario, Mrs. Simpson calculates the marginal utility per dollar for both items, finding that milk provides 87.5 utils per dollar, while bread offers 80 utils per dollar.

Since the marginal utility per dollar is higher for milk, Mrs. Simpson should adjust her purchases to buy more milk and less bread. This strategic shift enables her to maximize overall satisfaction within her budget constraints, emphasizing the economic concept of rational resource allocation based on marginal utility and opportunity cost.