Answer:
The correct option is c. $8.
Explanation:
Ken will maximize utility where the following equation holds:
MU of Sprite / Price of Sprite = MU of potato chips / Price of potato chips ................. (1)
Where;
MU of Sprite = Marginal utility of Sprite = 3
Price of Sprite = $1 per can
From the table in the question, equation (1) holds at the point where Marginal utility of potato chips is 6 since the Potato chips cost $2 per bag.
Substituting the values into equation (1), we have:
MU of Sprite / Price of Sprite = MU of potato chips / Price of potato chips => 3 / 1 = 6 / 2 = 3
Since when the marginal utility of potato chips that maximizes utility is 6, Ken consumes 4 Bags of Potato chips monthly and pays $2 per bag at this point, the amount he spends on potato chips each month can be calculated as follows:
Amount spent on potato monthly = Number of bags of Potato chips consumed monthly * Cost of potato chips per bag = 4 * $2 = $8
Therefore, the correct option is c. $8.
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