Question

Suppose the following information is true : MUcar = 36,000, MUcoke = 1.5, MUhouse = 450,000, Pcar = $12,000, and Phouse = $150,000, what must the price of coke be if the consumer is in equilibrium? a. $3. b. $0.30. c. $50. d. $0.50 e. $5.

Answer 1

The correct answer is d. $0.50

Step-by-step explanation:

Marginal utility is the extra satisfaction that is derived from consuming an extra unit of a product.

If the consumer is to be at equillibrum then his marginal utility to price ratio for all the commodities must be equal

We are given

MUcar = 36,000

MUcoke = 1.5

MUhouse = 450,000

Pcar = $12,000

Phouse = $150,000

MU to price ratio for car= 36,000/12,000= 3

MU to price ratio for house= 450,000/150,000= 3

So ratio of marginal utility to price for coke must be equal to 3 at equillibrum

MU to price ratio for coke= 1.5/x= 3

Cross multiplying

x= 1.5/3= $0.5

So price of coke must be $0.5 at equillibrum