A utility-maximizing consumer is currently spending all of his/her income on two products, A and B. The MU of the last unit of A consumed is 50, the price of A is $25, and the price of B is $10. The MU of the last unit of B consumed is:
A) 50.
B) 5.
C) 2.
D) 20.
E) cannot determine from this limited information

Question

Quizplus · Accepted Answer

For utility maximization, the marginal utility per dollar spent should be equal for both goods. MU_A/Price_A = MU_B/Price_B. Given MU_A = 50 and Price_A = 25, MU_B/10 = 50/25, so MU_B = 20.

A Utility-Maximizing Consumer Is Currently Spending All of His/her Income