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Suppose Dianne Lindsay Spends All Her Income on Two Goods

Question 74

Multiple Choice

Suppose Dianne Lindsay spends all her income on two goods, A and B, in a manner in which MUa = 15 and MUb = 75, and Pa = $3 and Pb = $15, then she


A) is already maximizing her total utility and should make no change
B) should increase her purchases of B and decrease her purchases of A because MUb is higher than MUa
C) should raise MUa so that the MUa/Pa ratio is higher and therefore buy more of A and less of B
D) should raise MUa so that the MUa/Pa ratio is higher and therefore buy more of B and less of A
E) should increase her purchases of A and decrease her purchases of B because the price of A is lower

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