The idea is that people act "as if" they were maximizing the utility they get from spending their limited income on burgers and cokes. In other words, they try to "allocate" that limited income between burgers and cokes efficiently -- in such a way as to give the greatest utility. We remember that "marginal" approaches have a lot to do with efficient allocation and maximizing anything. So, we will want to figure the marginal utilities of burgers and cokes.
In order to "maximize," our rational consumer will need to get the most out of every dollar spend. So we will also compute the quotient of marginal utility divided by price -- that is, the marginal utility per dollar spent on burgers and cokes. We will assume that a coke costs $1 and a burger costs $2.
| Burgers | Cokes | |||||
|---|---|---|---|---|---|---|
| Total Utility |
Marginal Utility |
MU/P | Total Utility |
Marginal Utility |
MU/P | |
| 0 | 0 | 0 | ||||
| 100 | 50 | 65 | 65 | |||
| 1 | 100 | 65 | ||||
| 50 | 25 | 10 | 10 | |||
| 2 | 150 | 75 | ||||
| 20 | 10 | 5 | 5 | |||
| 3 | 170 | 80 | ||||
| 10 | 5 | 0 | 0 | |||
| 4 | 180 | 80 | ||||
For example, we see that when Joe goes from one burger to two, that increases his utility from 100 to 150 units, so his marginal utility is 50. But since the burger costs him $2, he is increasing his utility only by 25 units per dollar spent.
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