Marginal utility 30 20 12 6 2 0

Required:

If Ken is maximizing his utility, how much does he spend on potato chips each month?

a. $2

b. $6

c. $8

d. $10

e. $12

Asked
10 months ago

Viewed
695191 times

Bags of Potato chips 1 2 3 4 5 6

Marginal utility 30 20 12 6 2 0

Required:

If Ken is maximizing his utility, how much does he spend on potato chips each month?

a. $2

b. $6

c. $8

d. $10

e. $12

Marginal utility 30 20 12 6 2 0

Required:

If Ken is maximizing his utility, how much does he spend on potato chips each month?

a. $2

b. $6

c. $8

d. $10

e. $12

**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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