Suppose that a consumer is currently spending all of her income on 10 units of good A and 5 units of good B.The price of good A is $4 per unit,the price of good B is $10 per unit,the marginal utility of the last unit of good A consumed is 20,and the marginal utility of the last unit of good B consumed is 60.If the consumer wants to maximize her utility from consuming the two goods,she should
A) consume more of good B and less of good A.
B) consume more of good A and less of good B.
C) continue to consume 10 units of good A and 5 units of good B.
D) consume more of both goods.

Question

Quizplus · Accepted Answer

To maximize utility, a consumer should allocate spending so that the marginal utility per dollar is equal for all goods. Here, the marginal utility per dollar for good A is 20/4 = 5, and for good B is 60/10 = 6. Since the marginal utility per dollar is higher for good B, the consumer should consume more of good B and less of good A.

Suppose That a Consumer Is Currently Spending All of Her