Question

Frank buys 10 magazines and 25 newspapers. The magazines cost $5 each and the newspapers cost $2.50 each. Suppose that his MU from the final magazine is 10 utils while his MU from the final newspaper is also 10 utils. According to the utility-maximizing rule, Frank should
A. Reallocate spending from magazines to newspapers.B. Reallocate spending from newspapers to magazines.C. Be satisfied because he is already maximizing his total utility.D. None of the above.

Answer 1

Answer:

C. Be satisfied because he is already maximizing his total utility

Explanation:

As the amount of utility provided by the 10th magazine is the same as the 25th newspapper we can determinate that Frank is in a maximizing point of their utility curve. That's because replacing Magazine for newspapers will make a difference between each other marginal utility and thus, being preferable to pick one over the other. Currently Frank utility is the same for both product so there is not desire to replace one from another.