Bob consumes food and housing. Suppose his marginal utility from an additional unit of food is 50 and his marginal utility from an additional unit of housing is 200. Furthermore, suppose the price of a unit of food is $1.00 and the price of a unit of housing is $5.00. Can Bob increase his utility without changing his total expenditures on food and housing

Question

Kaleb

Business

8 September, 08:14

Bob consumes food and housing. Suppose his marginal utility from an additional unit of food is 50 and his marginal utility from an additional unit of housing is 200. Furthermore, suppose the price of a unit of food is $1.00 and the price of a unit of housing is $5.00. Can Bob increase his utility without changing his total expenditures on food and housing

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Answers (1)

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Caleb Raymond · Answer 1

Bob can increase his utility by spending more on food and less on housing.

Explanation:

If Bob reduces 1 unit of housing his total utility will decrease by 200, but he will be able to save $5. If Bob uses these $5 to purchase more food units, he will be able to buy 5 more units of food which will increase his total utility by 250.

So for every unit of housing that Bob decides to change for 5 units of food, his total utility will increase by 50.