Eric is maximizing his total utility through his choices of two goods: clothes and food. His marginal utility of clothes is 60 and his marginal utility of food is 12. The price of clothes is $20. What must be the price of food?
A) 12.
B) 6.
C) 4.
D) 1.

Question

Quizplus · Accepted Answer

To maximize total utility, the consumer should allocate his budget in such a way that the marginal utility per dollar spent on each good is equal. This means that the marginal utility of clothes divided by the price of clothes should equal the marginal utility of food divided by the price of food. Thus, 60/20 = 12/Price of Food, which simplifies to 3 = 12/Price of Food. Solving for the Price of Food gives us $4.

Eric Is Maximizing His Total Utility Through His Choices of Two