Suppose that the price of a rental car (Prc) is $50 while the price of a flight (Pfl) is $85. Also, suppose that the marginal utility of a rental car (MUrc) is 20 utils while the marginal utility of flying (MUfl) is 30 utils. What is the best advice for this consumer?

To determine the best choice, compare the marginal utility per dollar spent for each option:

- Marginal utility per dollar for rental car: $\frac{MUrc}{Prc} = \frac{20}{50} = 0.4$
- Marginal utility per dollar for flight: $\frac{MUfl}{Pfl} = \frac{30}{85} \approx 0.35$

The consumer should choose the option with the higher marginal utility per dollar, which in this case is the rental car.

Question

College

Answer :

Priatouri Priatouri · Answer 1 · 2025-01-30T16:23:51-05:00

Answer:

Consumers should choose to take the flight.

Explanation:

The price of a rental car = $50

Marginal utility from the car = 20 utils

Now find the per dollar utility from car = $50 / 20 = 2.5

The price of a flight = $85

Marginal utility from the flight = 30 utils

Now find the per dollar utility from flight = $85 / 30 = 2.83

Since the per dollar, MU is greater in the case of flight so consumers should choose to take the flight.