Question

Miles is three years old and his grandparents have given him money to spend at the toy store as a birthday present. miles' number one favorite thing to play with is building blocks. assume that miles' utility will increase by 100 units if he purchases a new set of building blocks and and it will cost him $50. his second favorite thing to play with is fire trucks. fire trucks cost $20 and each new fire truck improves miles' utility by 80 units. his third favorite toy is trains. trains improve his utility by 15 units and cost $5 each. miles does not have to spend all of his money at once, but wants to get as much happiness as possible from his money. if miles buys only one toy, which should he buy to maximize his utility? a fire truck building blocks a train which relationship between marginal utility (mu) and price (p) indicates that a consumer is maximizing his or her utility regarding spending on two goods? muxpx = muypy mux+muy = px+py mux−px = muy−py muxmuy = pypx

Answer 1

To maximize utility, Miles should buy a fire truck because it has the highest marginal utility per dollar. He compares each toy's utility per dollar spent, and the fire truck provides the most utility for the least cost, aligning with the equal marginal principle MUx/Px = MUy/Py.

Step-by-step explanation:

If Miles wants to maximize his utility with the money he has received, he should compare the marginal utility per dollar for each toy option. For building blocks, the marginal utility per dollar is 100 units / $50 = 2 units per dollar. For a fire truck, it is 80 units / $20 = 4 units per dollar. And for a train, it is 15 units / $5 = 3 units per dollar.

Since the fire truck provides the highest marginal utility per dollar, Miles should buy the fire truck if he is only purchasing one toy. This decision would maximize his utility, as purchasing the fire truck gives the greatest satisfaction per dollar spent.

The relationship between marginal utility (MU) and price (P) that indicates a consumer is maximizing utility when spending on two goods is MUx/Px = MUy/Py. This relationship is known as the equal marginal principle and implies that a consumer has balanced the marginal utility per dollar across all goods being purchased.

Answer 2

Fire trucks

Step-by-step explanation:

Assume Miles buys a set of building blocks at $50. This increases his utility by 100 units. But in $50, he can buy 2.5 units of fire trucks and his utility can increase by 80*2.5 = 200 units. In $50, he can buy 10 trains and his utility can increase by 15*10=150 units. Since by spending $50 on fire trucks Miles gets maximum utility, he will buy fire trucks.