Economists refer to consumer satisfaction as utility and use \"utils\" to measur
ID: 1242468 • Letter: E
Question
Economists refer to consumer satisfaction as utility and use "utils" to measure consumer utility. Jill enjoys cookies and milk as a snack. Below is a table showing Jill's utility from consuming cookies and milk: Total Utility (Utils) 0, 1, 2, 3, 4 # Cookies 0,300,500,600,650 Utils 0,1,2,3,4 # Milk: 0,600,700,720,730 If a cookie costs $1 and a glass of milk is $1, what combination of cookies and milk will provide Jill with the greatest total utility if she has $5 to expend? Now suppose that a cookie costs $1 and a glass of milk costs $2. Is Jill in consumer equilibrium if she consumes one cookie and one glass of milk? Please explain how you arrived at your answer.Explanation / Answer
a) objective is to maximize total utility possible combinations 300+730 = 1030 500+720 = 1220 600+700 = 1300 650+600 = 1250 so in order to maximize total utility 2 glass of milk and 3 cookies b)no Jill isnt in consumer equilibrium because since the price of milk has doubles the utility he gets from 1 additional unit of milk has become half of what it was previously..so he would reduce the quantity of milk to less than one as the marginal utility is less