Exercise: maximizing utility

You are given a table containing the quantities, price, and marginal utilities of two goods, fudge and coffee, which consumer A purchases.

Table:	Fudge	Coffee
Quantity of purchase	11 pounds	6 pounds
Price per pound	$3	$3
Marginal utility of last pound	13	24

If consumer A spends all of their income on these two goods, what should consumer A do in order to maximize their utility? (hint: remember the utility maximizing rule)

since we know that the utility is maximized when:

$\frac{MU_F}{P_F}=\frac{MU_C}{P_C}$

Let's use the information from the table above,

$\frac{13}{\$3}< \frac{24}{\$3}$

we can clearly see that the marginal utility for coffee is greater than that of fudge. Utility is subjected to the law of diminishing marginal utility; marginal utility (MU) diminishes as consumers buy more. Thus, in order to maximize their utility, consumer A needs to buy more coffee and less fudge up until the ratio of the MU of coffee over its price is equal to the ratio of the MU of fudge over the price of the latter.

Source: example inspired from the 2008 AP Microeconomics exam found on p.74 of AP Microeconomics Crash Course. Research & Education Association (2014), by Mayer. David

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