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.

Question

Quizplus · Accepted Answer

The consumer is currently maximizing utility, which means that the marginal utility per dollar spent on A and B must be equal. 
MU per dollar spent on A = MU of A/P of A = 50/25 = 2
MU per dollar spent on B = MU of B/P of B = MU of B/10 
Since they are equal, we can set them equal to each other: 
2 = MU of B/10
MU of B = 20. 
Therefore, the MU of the last unit of B consumed is 20.

The best choice for the consumer depends on their total income and the quantities they are currently consuming of A and B. Without knowing this information, we cannot determine the best choice.

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