Question

Ronald, who consumes only hamburgers and hot dogs, has a weekly income of $50. He is currently consuming 20 hamburgers, at a price of $2 each, and 10 hot dogs, at a price of $1 each. If the last hamburger and the last hot dog both added 50 units to Ronald's total utility, he a. is making the utilitymaximizing choice. b. should buy more hamburgers and fewer hot dogs. c. should buy more hot dogs and fewer hamburgers. d. obtains more additional utility per dollar from hot dogs than from hamburgers. e. both c and d

Answer 1

Ronald is not making a utility-maximizing choice as he obtains more utility per dollar from hot dogs than from hamburgers. Therefore, he should adjust his consumption to buy more hot dogs and fewer hamburgers to maximize his utility.

Step-by-step explanation:

Regarding the question about whether Ronald is making a utility-maximizing choice by consuming 20 hamburgers and 10 hot dogs, we need to employ the concept of marginal utility per dollar spent. The marginal utility of the last hamburger is 50 units for a price of $2, while the marginal utility of the last hot dog is 50 units for a price of $1. To determine if he is maximizing utility, we compare the marginal utility per dollar spent on both goods.

The marginal utility per dollar spent on hamburgers is 50 units / $2 = 25 units per dollar, and for hot dogs, it is 50 units / $1 = 50 units per dollar. Because Ronald gains more marginal utility per dollar from hot dogs than from hamburgers, he is not making the utility-maximizing choice. Therefore, option (c) 'should buy more hot dogs and fewer hamburgers' and option (d) 'obtains more additional utility per dollar from hot dogs than from hamburgers' are correct, making option (e) 'both c and d' the correct answer.

Answer 2

e. both c and d

• c. should buy more hot dogs and fewer hamburgers.
• d. obtains more additional utility per dollar from hot dogs than from hamburgers.

Step-by-step explanation:

in order to determine if Ronald is maximizing his utility, we must calculate the utility per dollar spent:

• hamburgers's utility = utils / price = 50 / $2 = 25 utils per $
• hot dogs' utility = utils / price = 50 / $1 = 50 utils per $

Ronald is not maximizing his utility since he is getting twice as much utils per dollar by consuming hot dogs. This means that he should increase the number of hot dogs eaten and decrease the number of hamburgers.