Question

Eric is maximizing his total utility through his choices of two goods: clothes and food. His marginal utility of clothes is 60 and his marginal utility of food is 12. The price of clothes is $20. What must be the price of food

Answer 1

$4 per unit

Step-by-step explanation:

utils per $1 spent on clothes = total utils from clothes / price of clothes = 60 / $20 = 3 utils per dollar spent

since Eric is maximizing his total utility, then the utils obtained from food must also equal 3 per every dollar spent on food:

3 = 12 / price of food

price of food = 12 / 3 = $4 per unit