Suppose that for Merv the marginal utility of $50-per-serving caviar is 100 and the marginal utility of $1-per-serving popcorn is 10. For his snack, Merv should buy:
A) the caviar if he has the $50; otherwise, the popcorn.
B) the caviar if he has the $50; otherwise, nothing.
C) the popcorn, whether he has the $50 or not.
D) five servings of popcorn for each serving of caviar.

Question

Quizplus · Accepted Answer

The correct choice is based on the concept of marginal utility per dollar spent. Merv gets a marginal utility of 100 from a $50 serving of caviar, which is 2 per dollar spent (100/50), and a marginal utility of 10 from a $1 serving of popcorn, which is 10 per dollar spent (10/1). Therefore, Merv gets more utility per dollar from buying popcorn, making it the better choice regardless of how much money he has.

Suppose That for Merv the Marginal Utility of $50-Per-Serving Caviar