Question

Consider a consumer of beef steaks and fried fish fillets. Suppose the price of a plate of beef steak is $8 and that of fried fish fillets is $10 at a restaurant. If the marginal utility of baked beefsteak to the consumer is 20 units, the marginal utility of fried fish fillets is _____, assuming that the consumer maximizes his utility.

a. 80 units
b. 12 units
c. 25 units
d. 20 units

Answer 1

Using the equi-marginal principle and the formula MU1/P1 = MU2/P2, the marginal utility of fried fish fillets for a consumer maximizing utility, given the marginal utility of beef steak and the prices of both goods, is calculated to be 25 units.

Step-by-step explanation:

The question deals with the concept of utility maximization in economics, where a consumer aims to get the highest satisfaction from the goods they consume given their budget constraints. The consumer is choosing between beef steaks and fried fish fillets, with given prices and marginal utilities. To maximize utility, the consumer should allocate their money in such a way that the last dollar spent on each good provides the same amount of utility (the equi-marginal principle). The formula is MU1/P1 = MU2/P2. In this case, we know the marginal utility of beef steak (MU1) is 20 units and the price of beef steak (P1) is $8. Using the formula, the marginal utility of fried fish fillets (MU2) can be calculated given that the price of fried fish fillets (P2) is $10.

By rearranging the formula to solve for MU2: MU2 = (MU1/P1) * P2, we get: MU2 = (20/8) * 10 = 2.5 * 10 = 25 units.

Therefore, if the consumer maximizes his utility, the marginal utility of fried fish fillets is 25 units.