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Utility Maximization

Bridget has a limited income and consumes only wine and cheese; her current consumption choice is four bottles of wine and 10 pounds of cheese. The price of wine is $10 per bottle, and the price of cheese is $4 per pound. The last bottle of wine added 50 units to Bridget's utility, while the last pound of cheese added 40 units.

A. Is Bridget making the utility-maximizing choice? Why or why not?

B. If not, what should she do instead? Why?

Solution Preview

A. Is Bridget making the utility-maximizing choice? Why or why not?

Marginal Utility of last bottle of wine=MUw=50
Price of wine=Pw=$10
Marginal Utility of last pound of cheese=MUc=40
Price of cheese=Pc=$4
Marginal ...

Solution Summary

Solution describes the steps to check if Bridget is maximizing total utility level with the current level of consumption.

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