WORK IT OUT

Maximizing Utility

The general rule,

, means that the last dollar spent on each good provides exactly the same

marginal utility. This is the case at point S. So:

Step 1. If we traded a dollar more of movies for a dollar more of T-shirts, the marginal utility gained from T-shirts

would exactly offset the marginal utility lost from fewer movies. In other words, the net gain would be zero.

Step 2. Products, however, usually cost more than a dollar, so we cannot trade a dollar’s worth of movies. The

best we can do is trade two movies for another T-shirt, since in this example T-shirts cost twice what a movie

does.

Step 3. If we trade two movies for one T-shirt, we would end up at point R (two T-shirts and four movies).

Step 4. Choice 4 in Table 6.4 shows that if we move to point R, we would gain 21 utils from one more T-shirt, but

lose 23 utils from two fewer movies, so we would end up with less total utility at point R.
{"creationdate": "2022-12-07T14:15:44-06:00", "file_size_mb": 26.99, "source_file": "downloads\\business\\economics\\Microeconomics3e.pdf", "uploaded_via": "batch_uploader", "file_hash": "830b81f41611ac67a490444dbb5d6aed292224606965b06965b914443c93331a", "file_name": "Microeconomics3e.pdf", "batch_upload": true, "moddate": "2022-12-07T14:23:05-06:00", "creator": "PDFMiner", "total_pages": 597, "file_type": ".pdf", "title": "Principles of Microeconomics 3e", "source": "downloads\\business\\economics\\Microeconomics3e.pdf", "producer": "Prince 14.2 (www.princexml.com)", "upload_timestamp": "2026-02-07T15:24:38.309401"}