Question #66490

Beer and Tutoring.png

The table above shows Nathan's marginal utility per dollar for math tutors and beer each week. Each unit of beer costs $2.00 and each unit of tutoring costs $10.00. If Nathan has $50.00 to spend each week:

How many hours of tutoring will he buy?

How many units of beer will he buy?

The table above shows Nathan's marginal utility per dollar for math tutors and beer each week. Each unit of beer costs $2.00 and each unit of tutoring costs $10.00. If Nathan has $50.00 to spend each week:

How many hours of tutoring will he buy?

How many units of beer will he buy?

Expert's answer

If each unit of beer costs $2.00, each unit of tutoring costs $10.00 and Nathan has $50.00 to spend each week, then the optimal quantity of tutoring and beer to be bought is such, for which MUt/Pt = MUb/Pb or MUt/10 = MUb/2 and Pt*Qt + Pb*Qb = $50.

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