stella is currently spending all of her weekly income purchasing the two goods t

Question

stella is currently spending all of her weekly income purchasing the two goods that she likes hamburgers and fries. She is currently purchasing 10 hamburgers and 5 arge fries She receives 30 utils from her 10th hamburger and 15 ubils from her 5th large fry. The price of hamburgers is $3, and the price of fries is $1. Is Stella maximizing her utility, and if not, what should she do? A. Stola should buy fewer hamburgers and more fries. O B. Stella should buy more ° C. Stella should buy more hamburgers and more fries. 0 D. Stella should buy fewer hamburgers and fewer fries 0 E. There is not enough information to tell what Stella should do. and fewer fries.

Explanation / Answer

Correct Answer:

A.

Working Note:

For 10th unit of hamburger,

Marginal utility per dollar = 30/3 = 10 utils/$

For 5th unit of large fires

Marginal utility per dollar = 15/1 = 15 utilis / $

Since, the marginal utility per dollar of 5th unit of large fries is higher than then Marginal utility per dollar for 10th unit of hamburger. Hence, Stella should buy more of large fires and less of hamburger.

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