Ashley is currently consuming 10 hot dogs and 8 hamburgers a week. The last hot dog she consumed yielded 20utils while the last hamburger she ate gave her 25utils. If hot dogs cost $2 and hamburgers cost $2.50, is Ashley consuming the correct quantities of these two goods to be in equilibrium?
I think it's yes because both hot dogs and hamburgers give her 10utils per dollar. Can someone please clear this up for me? Thanks.
no
To determine if Ashley is consuming the correct quantities to be in equilibrium, we need to compare the marginal utility per dollar of hot dogs and hamburgers.
The marginal utility per dollar can be calculated by dividing the marginal utility of a good by its price. In this case, the marginal utility of hot dogs is 20utils and the price is $2, so the marginal utility per dollar of hot dogs is 20/2 = 10utils per dollar. Similarly, the marginal utility of hamburgers is 25utils and the price is $2.50, so the marginal utility per dollar of hamburgers is 25/2.50 = 10utils per dollar.
Since the marginal utility per dollar of both hot dogs and hamburgers is the same at 10utils per dollar, Ashley is consuming the correct quantities of these two goods to be in equilibrium. She is getting the same amount of utility per dollar spent on both items, so her consumption is balanced.