Question

Ice cream sells for Rs. 40. Rohan who likes ice cream has already consumed 8. Her marginal utility of one rupee is 8. Should she consume more ice cream or stop the consumption? .

Answer 1

A consumer attains equilibrium when:

Substituting the given values, we get MU_x/8 = 40 implying that, in a state of equilibrium, Rohan’s MU_x must be equal to 320. If, having consumed 8 ice creams, Rohan’s MU_x = 320 he must stop consuming more. However, if MU_x > 320 he should consume more ice creams till MU_x reduces to 320 and in terms of its money worth is equal to P_x = 40.