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Utility Maximization and Consumption

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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

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Solution Summary

Solution depicts the steps to determine if Bridget is maximizing total utility at the current level of consumption.

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a. Is Bridget making the utility-maximizing choice? Why or why not?
Marginal utility of last unit of wine bottle per dollar spent=50/10=5
Marginal utility of last unit of cheese per dollar ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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