Question

Martha's current marginal utility from consuming orange juice is 75 utils per ounce and her marginal utility from consuming coffee is 50 utils per ounce. If orange juice costs 25 cents per ounce and coffee costs 20 cents per ounce, is Martha maximizing her total utility from the two beverages? If so, explain how you know. If not, how should she rearrange her spending?

Answer 1

Martha spend more on orange juice and less on coffee

Step-by-step explanation:

given data

orange juice = 75 utils per ounce

orange juice costs = 25 cents per ounce

coffee = 50 utils per ounce

coffee costs = 20 cents per ounce

solution

we get here Martha current consume cost orange and coffee both that is

orange juice = (75 utils/ounce) ÷ ($0.25/ounce)

orange juice = 300 utils per dollar

and

coffee = (50 utils/ounce) ÷ ($0.20 /ounce)

coffee = 250 utils per dollar

so we can see here both price is different

so that here not maximizing utility.

Martha spend more on orange juice and less on coffee