At her current level of consumption, Jess gets half as much marginal utility from an additional bagel as from an additional muffin. If the price of muffin is $2 each, then Jess is maximizing her utility if the price of a bagel is:
A)$1.00
B)$1.50
C)$2.00
D)$4.00

Question

Quizplus · Accepted Answer

The rational spending rule maintains that consumers should allocate their spending between two goods such that the marginal utility per dollar spent is the same for both goods (that is, MU/P must be the same for both goods). Here, since the marginal utility from an additional bagel is half as big as that from a muffin, Jess is maximizing her utility if the price of a bagel is half the price of a muffin.

At Her Current Level of Consumption, Jess Gets Half as Much