Answer to Question #70619 in Microeconomics for Mitchell Orrock
Cletus currently purchases five gallons of gasoline per week and four gallons of diesel per week. Diesel costs $3 per gallon and gasoline costs $2 per gallon. At his current rate of consumption, Cletus spends all of his weekly fuel budget. His marginal utility (MU) from the fifth gallon of gas is 50 and his marginal utility from the fourth gallon of diesel is 60.
1.1. True or False: Cletus's current consumption levels of diesel and gasoline maximize his total utility.
MU1/P1= MU2/P2, where MU1 – marginal utility from the last gallon of gas, MU2 – marginal utility from the last gallon of diesel, P1 – price of all gallons of gas, P2 – price of all gallons of diesel.
So, statement that Cletus's current consumption levels of diesel and gasoline maximize his total utility is true.
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