–

Q is

preferred

over P

R is

preferred

over Q

S is

preferred

over R

S is

preferred

over T

TABLE 6.4 A Step-by-Step Approach to Maximizing Utility

WORK IT OUT

Decision Making by Comparing Marginal Utility
José could use the following thought process (if he thought in utils) to make his decision regarding how many T-

shirts and movies to purchase:

Step 1. From Table 6.2, José can see that the marginal utility of the fourth T-shirt is 18. If José gives up the

fourth T-shirt, then he loses 18 utils.

Step 2. Giving up the fourth T-shirt, however, frees up $14 (the price of a T-shirt), allowing José to buy the first

two movies (at $7 each).

Step 3. José knows that the marginal utility of the first movie is 16 and the marginal utility of the second movie is

15. Thus, if José moves from point P to point Q, he gives up 18 utils (from the T-shirt), but gains 31 utils (from the

movies).
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