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A consumer is currently purchasing three pairs of Jeans and five t-shirts per year. The price of jeans is $30 and the price of the t-shirts $10.00. At the current rate of consumption, the marginal utility of Jeans is 60 and the marginal utility of the t-shirt is 30. Is the consumer maximizing his utility. Would you advise him to buy more Jeans or more t-shirts? Use the formula for utility maximization to explain your answer.

Respuesta :

Answer and Explanation:

Given:

Price of jeans = $30

Price of T-shirt = $10

Marginal utility of Jeans = 60

Marginal utility of T-shirt = 30

For maximum utility,

Maximum marginal utility of commodity A = Maximum marginal utility of commodity B

Maximum marginal utility of jeans = 60 / $30 = 2

Maximum marginal utility of T-shirt = 30 / $10 = 3  

Under this situation,

Marginal utility of jeans < Marginal utility of T-shirt

2 < 3

Therefore, he will buy more t-shirt to get maximum utilization.  

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