A consumer buys Bread (B) and Milk (M) each week at prices of Rs. 10 and Rs. 8 respectively. Suppose that the consumer's current consumption of Bread and Milk is giving him MUBrend = 80 and MUMia = 70. Is the consumer buying the utility-maximizing combination of bread and milk? If not, how should he reallocate his expenditures between the two goods to maximize utility? Draw diagram and explain.

A consumer buys Bread (B) and Milk (M) each week at prices of Rs. 10 and Rs. 8 respectively. Suppose that the consumer's current consumption of Bread and Milk is giving him MUBrend = 80 and MUMia = 70. Is the consumer buying the utility-maximizing combination of bread and milk? If not, how should he reallocate his expenditures between the two goods to maximize utility? Draw diagram and explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A consumer buys Bread (B) and Milk (M) each week at prices of Rs. 10 and Rs. 8 respectively. Suppose
that the consumer's current consumption of Bread and Milk is giving him MUBrend = 80 and MUMia = 70.
Is the consumer buying the utility-maximizing combination of bread and milk? If not, how should he
reallocate his expenditures between the two goods to maximize utility? Draw diagram and explain.

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