Answer:
Let Frank spends x amount in purchasing the magazines and newspapers.(though this is not used here)
MU is marginal utility where a customer can decide a particular way to allocate his income.
This allocation is done in a way, that the last dollar spent on purchasing a product will yield the same amount of extra marginal utility.
MU from the final magazine is 10 units while his MU from the final newspaper is also 10 units.
MU per dollar spent on magazines = [tex]\frac{10}{5}=2[/tex]
MU per dollar spent on newspapers = [tex]\frac{10}{2.5}=4[/tex]
We can see the MU per dollar spent on magazine is less than newspapers.
Therefore, according to the utility-maximizing rule, Frank should re-allocate spending from magazines to newspapers.
Answer:
He should investing more money on newspaper
Step-by-step explanation:
Given:
His MU from the final magazine and final newspaper is 10 utils, so we have:
magazine = $5 / 10 utils = $0.50 per util
newspaper = $2.50 / 10 utils = $0.25 per util
He should investing more money on newspaper because twice the amount obtained from each dollar spent on newspapers than magazines as we can see above,
Hope it will find you well.
