If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should
A) decrease his spending on cola.
B) decrease his spending on cola and increase his spending on shirts.
C) increase his spending on shirts.
D) increase his spending on cola and decrease his spending on shirts.

Question

Quizplus · Accepted Answer

To maximize utility, Mr. Smith should allocate his spending such that the marginal utility per dollar is equal across all goods. Since the last dollar spent on shirts yields less satisfaction than on cola, he should spend more on cola and less on shirts to equalize the marginal utility per dollar spent.

If Mr Smith Thinks the Last Dollar Spent on Shirts Yields