If tbone steak cost 12.00 a lb and 1st util is 48, 2nd is 42, and 3rd util is 36 and we also buy ground round at 4.00 a lb and we derive 24 utils for the 1st lb, 16 for the second and 12 for the third and all we have to spend is 40.00 then how many lbs. of t-bone and ground round do we have to buy to be in consumer equilibrium ?

Question

If tbone steak cost 12.00 a lb and 1st util is 48, 2nd is 42, and 3rd util is 36 and we also buy ground round at 4.00 a lb and we derive 24 utils for the 1st lb, 16 for the second and 12 for the third  and all we have to spend is 40.00 then how many lbs. of t-bone and ground round do we have to buy to be in consumer equilibrium ?

economyst · Answer

To maximize utility, a consumer should purchase the item that provides the highest marginal utility per dollar. Then the next highest, then the next highest until the consumer runs out of money. So divide the MUs by the price and keep picking items until you run out of money. I get the consumer will choose 2.667 lbs tbone and 2 lbs ground round OR 2.333 lbs tbone and 3 lbs ground round. (both answers give the same total utility)