An economist's eight-year-old son gave his parents the following utility tables and then told them that he would like Santa to give him presents that have the maximum possible marginal utility per dollar. Santa has a budget of $60 per child. If action figures cost Santa $10 to produce and squirt guns cost Santa $15 to produce, what presents should Santa deliver this year?
Action Figures
Quantity 1 2 3 4 5 6
Total Utility 60 140 180 200 210 215
MU 60 80 40 20 10 5
MU/$ 6 8 4 2 1 0.5
Squirt Guns
Quantity 1 2 3 4
Total Utility 100 170 210 220
MU 100 70 40 10
MU/$ 6.7 4.7 2.7 0.7
Based on the marginal utility per dollar, Santa should deliver 2 action figures and 3 squirt guns to the 8-year-old son.
For the action figures:
Total cost: 2 x $10 = $20
Total utility: 140 (for 2 action figures)
Marginal utility per dollar: 8 (highest value)
For the squirt guns:
Total cost: 3 x $15 = $45
Total utility: 210 (for 3 squirt guns)
Marginal utility per dollar: 4.7 (highest value)
This combination of presents will maximize the son's total utility given Santa's budget of $60 per child.