Friday, August 12, 2011

Question on marginal utility?

Rebecca is sitting at the oyster bar trying to allocate her income between shrimp and oysters to maximize her utility. The price of a shrimp is $2.50 and the price of an oyster is $5.00. After Rebecca spends her money, the marginal utility of the last shrimp is 40 and the marginal utility of the oyster is 50. Rebecca has not allocated her income optimally. Explain. How should Rebecca change her allocation to increase her utility? How will she know when she has optimized?

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