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José clearly prefers point Q to point P. Now repeat this step-by-step process of decision making with marginal utilities. José thinks about giving up the third T-shirt and surrendering a marginal utility of 20, in exchange for purchasing two more movies that promise a combined marginal utility of 27. José prefers point R to point Q. What if José thinks about going beyond R to point S? Giving up the second T-shirt means a marginal utility loss of 21, and the marginal utility gain from the fifth and sixth movies would combine to make a marginal utility gain of 23, so José prefers point S to R.

However, if José seeks to go beyond point S to point T, he finds that the loss of marginal utility from giving up the first T-shirt is 22, while the marginal utility gain from the last two movies is only a total of 19. If José were to choose point T, his utility would fall to 100. Through these stages of thinking about marginal tradeoffs, José again concludes that S, with one T-shirt and six movies, is the choice that will provide him with the highest level of total utility. This step-by-step approach will reach the same conclusion regardless of José’s starting point.

Another way to look at this is by focusing on satisfaction per dollar. Marginal utility per dollar is the amount of additional utility José receives given the price of the product. For José’s T-shirts and movies, the marginal utility per dollar is shown in [link] .

marginal utility per dollar = marginal utility price

José’s first purchase will be a movie. Why? Because it gives him the highest marginal utility per dollar and it is affordable. José will continue to purchase the good which gives him the highest marginal utility per dollar until he exhausts the budget. José will keep purchasing movies because they give him a greater “bang or the buck” until the sixth movie is equivalent to a T-shirt purchase. José can afford to purchase that T-shirt. So José will choose to purchase six movies and one T-shirt.

Marginal utility per dollar
Quantity of T-Shirts Total Utility Marginal Utility Marginal Utility per Dollar Quantity of Movies Total Utility Marginal Utility Marginal Utility per Dollar
1 22 22   22/$14=1.6 1 16 16 16/$7=2.3
2 43 21   21/$14=1.5 2 31 15 15/$7=2.14
3 63 20   20/$14=1.4 3 45 14 14/$7=2
4 81 18   18/$14=1.3 4 58 13 13/$7=1.9
5 97 16   16/$14=1.1 5 70 12 12/$7=1.7
6 111 14   14/$14=1 6 81 11 11/$7=1.6
7 123 12   12/$14=1.2 7 91 10 10/$7=1.4

A rule for maximizing utility

This process of decision making suggests a rule to follow when maximizing utility . Since the price of T-shirts is twice as high as the price of movies, to maximize utility the last T-shirt chosen needs to provide exactly twice the marginal utility (MU) of the last movie. If the last T-shirt provides less than twice the marginal utility of the last movie, then the T-shirt is providing less “bang for the buck” (i.e., marginal utility per dollar spent) than if the same money were spent on movies. If this is so, José should trade the T-shirt for more movies to increase his total utility. Marginal utility per dollar measures the additional utility that José will enjoy given what he has to pay for the good.

Questions & Answers

explain and give four Example hyperbolic function
Lukman Reply
The denominator of a certain fraction is 9 more than the numerator. If 6 is added to both terms of the fraction, the value of the fraction becomes 2/3. Find the original fraction. 2. The sum of the least and greatest of 3 consecutive integers is 60. What are the valu
SABAL Reply
1. x + 6 2 -------------- = _ x + 9 + 6 3 x + 6 3 ----------- x -- (cross multiply) x + 15 2 3(x + 6) = 2(x + 15) 3x + 18 = 2x + 30 (-2x from both) x + 18 = 30 (-18 from both) x = 12 Test: 12 + 6 18 2 -------------- = --- = --- 12 + 9 + 6 27 3
Pawel
2. (x) + (x + 2) = 60 2x + 2 = 60 2x = 58 x = 29 29, 30, & 31
Pawel
Mark and Don are planning to sell each of their marble collections at a garage sale. If Don has 1 more than 3 times the number of marbles Mark has, how many does each boy have to sell if the total number of marbles is 113?
mariel Reply
Mark = x,. Don = 3x + 1 x + 3x + 1 = 113 4x = 112, x = 28 Mark = 28, Don = 85, 28 + 85 = 113
Pawel
how do I set up the problem?
Harshika Reply
what is a solution set?
Harshika
find the subring of gaussian integers?
Rofiqul
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Shirley Reply
please can go further on polynomials quadratic
Abdullahi
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Mark
I need quadratic equation link to Alpa Beta
Abdullahi Reply
find the value of 2x=32
Felix Reply
divide by 2 on each side of the equal sign to solve for x
corri
X=16
Michael
Want to review on complex number 1.What are complex number 2.How to solve complex number problems.
Beyan
yes i wantt to review
Mark
use the y -intercept and slope to sketch the graph of the equation y=6x
Only Reply
how do we prove the quadratic formular
Seidu Reply
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Darius
hello, if you have a question about Algebra 2. I may be able to help. I am an Algebra 2 Teacher
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Opoku
what is math number
Tric Reply
4
Trista
x-2y+3z=-3 2x-y+z=7 -x+3y-z=6
Sidiki Reply
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Mark
Solve for the first variable in one of the equations, then substitute the result into the other equation. Point For: (6111,4111,−411)(6111,4111,-411) Equation Form: x=6111,y=4111,z=−411x=6111,y=4111,z=-411
Brenna
(61/11,41/11,−4/11)
Brenna
x=61/11 y=41/11 z=−4/11 x=61/11 y=41/11 z=-4/11
Brenna
Need help solving this problem (2/7)^-2
Simone Reply
x+2y-z=7
Sidiki
what is the coefficient of -4×
Mehri Reply
-1
Shedrak
the operation * is x * y =x + y/ 1+(x × y) show if the operation is commutative if x × y is not equal to -1
Alfred Reply
A soccer field is a rectangle 130 meters wide and 110 meters long. The coach asks players to run from one corner to the other corner diagonally across. What is that distance, to the nearest tenths place.
Kimberly Reply
Jeannette has $5 and $10 bills in her wallet. The number of fives is three more than six times the number of tens. Let t represent the number of tens. Write an expression for the number of fives.
August Reply
What is the expressiin for seven less than four times the number of nickels
Leonardo Reply
How do i figure this problem out.
how do you translate this in Algebraic Expressions
linda Reply
why surface tension is zero at critical temperature
Shanjida
I think if critical temperature denote high temperature then a liquid stats boils that time the water stats to evaporate so some moles of h2o to up and due to high temp the bonding break they have low density so it can be a reason
s.
Need to simplify the expresin. 3/7 (x+y)-1/7 (x-1)=
Crystal Reply
. After 3 months on a diet, Lisa had lost 12% of her original weight. She lost 21 pounds. What was Lisa's original weight?
Chris Reply
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Antonio Reply
Suppose that a 5% increase in the minimum wage causes a 5% reduction in employment. How would this affect employers and how would it affect workers? In your opinion, would this be a good policy?
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Source:  OpenStax, Openstax microeconomics in ten weeks. OpenStax CNX. Sep 03, 2014 Download for free at http://legacy.cnx.org/content/col11703/1.2
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