How many pairs would she wish to buy at $7 per pair? Her first pair brings her total utility to 15, so we know that her marginal utility for the 1st pair is 15. A 2nd pair of socks increases her total utility from 15 to 27, so her marginal utility for a 2nd pair is 12, and so on.
Using this approach, it's easy to see that she would purchase 4 pairs of socks. The 4th pair gives her a marginal utility of 7 and the price is $7 so she buys that pair. The 1st-3rd pairs gave her more than 7 worth of marginal utility so she buys 4 pairs when the price is $7. (The fact is she's indifferent to buying the 4th pair but, we assume that consumers will purchase units where MU = P if possible.)
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Wool Sock Utility
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Quantity | Total Utility |
1 | 15 |
2 | 27 |
3 | 37 |
4 | 44 |
5 | 49 |
6 | 51 |
|