Larry and Teri allocate their consumption between two goods: hats and bats. The price of hats is $4 each, and the price of bats is $8 each. For Larry, the marginal utility of the last hat consumed was 8, and the marginal utility of the last bat was 24. For Teri, the marginal utility of the last hat was 6, and the marginal utility of the last bat was 12. Which consumer is not maximizing his/her utility

Question

Danna Trevino

Business

5 January, 07:35

Larry and Teri allocate their consumption between two goods: hats and bats. The price of hats is $4 each, and the price of bats is $8 each. For Larry, the marginal utility of the last hat consumed was 8, and the marginal utility of the last bat was 24. For Teri, the marginal utility of the last hat was 6, and the marginal utility of the last bat was 12. Which consumer is not maximizing his/her utility

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Laylah · Answer 1

Answer: Teri

Explanation: The price of the hats and bats for both consumers are the same. However, Larry gets more marginal utility for the last unit of each item that he consumed.

Marginal Utility is the satisfaction derived from consuming an additional unit of a good or service. The first unit consumed usually gives the most satisfaction, while the last unit gives the least satisfaction.

Larry

marginal utility of the last hat = 8

marginal utility of the last bat = 24

Teri

marginal utility of the last hat = 6

marginal utility of the last bat = 12

Compared to Larry, Teri is not maximizing her utility as much. This applies to both goods, the hats and the bats.