Tris is shopping for pants and belts. He has a budget of $100. The price of a pair of pants is $20 and the price of a belt is $5. His marginal utility schedules are above. What combination of pants and belts does Tris buy? Explain your answer
What will be an ideal response?
Tris buys 4 pairs of pants and 4 belts because this is the combination that allocates (spends) all of his budget and has the marginal utility per dollar from a pair of pants equal to the marginal utility per dollar from a belt. For the first requirement, that Tris allocate his entire budget, the combination of 4 pants and 4 belts spends (4 pairs of pants) × ($20 per pair of pants) = $80 on pants and (4 belts) × ($5 per belt) = $20 on belts, for a total spent of $100. For the second requirement, the equality of the marginal utilities per dollar, the marginal utility per dollar from a pair of pants is (100 units) ÷ ($20 ) = 5 units per dollar and the marginal utility per dollar from a belt is (25 units) ÷ ($5 ) = 5 units per dollar.
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