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. a. Mrs. Simpson should buy more bread and more milk. more milk and less bread. less milk and more bread. less bread and less milk. b. Mrs. Simpson is not buying the utility-maximizing combination of bread and milk since the marginal utility per cent spent on bread is 0.875 and the marginal utility per cent spent on milk is 0.80. is not buying the utility-maximizing combination of bread and milk since the marginal utility per cent spent on bread is 0.80 and the marginal utility per cent spent on milk is 0.875. may or may not be buying the utility-maximizing combination of bread and milk since the amount that she is purchasing is not given. cannot determine the utility-maximizing combination of bread and milk from the given information.

Answer 1

A) Mrs. Simpson should buy more milk and less bread.

B) Mrs. Simpson is not buying the utility-maximizing combination of bread and milk since the marginal utility per cent spent on bread is 0.80 and the marginal utility per cent spent on milk is 0.875.

Step-by-step explanation:

Besides the nutritional differences between bread and milk, Mrs. Simpson is not buying the utility-maximizing combination of bread and milk.

When she purchases bread, she is paying $1 for 80 utils, that means that the marginal utility per cent spent is 0.80.

When she purchases milk, she is paying $0.80 for 70 utils, that means that the marginal utility per cent spent is 0.875.

So the marginal utility per cent spent is higher for milk.