Name ____________________________________________________
 

Your textbook tells us that a consumer maximizes the total utility he receives from a limited income by observing this rule:

                                                            MU_A = MU_B = . . . = MU_X
                                                              P_A         P_B                 P_X

a. Explain in everyday language (no economic jargon) what this rule MEANS.
 

b. Charlie Cadet is currently receiving 30 utils of satisfaction from the last $2 hamburger he consumed and 30 utils of satisfaction from the last $5 movie he saw. According to the Rule for Utility Maximization we studied, is Charlie getting the maximum possible satisfaction from the money he is spending? If you say "Yes," explain WHY; if you say "No," explain WHY NOT, and then say what he should do differently.
 

c. Cadets Abbott and Costello were each given $45 to spend any way they wish. Abbott purchased 3 dinners at Shem Creek Bar & Grill for $9 each and made 6 visits to Desperado’s for $3 a visit. He received 36 utils of satisfaction from his third dinner and 18 utils of satisfaction from his sixth night of line dancing.

Costello made 3 trips to the Ultravision Theater to see movies for $4 each and then made 3 trips to Steak and Ale for dinner at $11 per trip. The third movie gave him 8 utils of satisfaction, while the third dinner gave him 22 utils of satisfaction.

According to the rule for utility maximization (and not "In your heart, you know I'm right!"), which cadet spent his money more wisely? Explain WHY.