The relative price of beer to bacon is 2:1.If Bob's current consumption is at a level where MU_beer/MU_bacon is 1:2,then to maximize total utility Bob must A)consume more beer and less bacon. B)not change his current consumption of beer and bacon. C)consume less beer and more bacon. D)raise the price of beer. E)consume twice as much beer and half as much bacon.

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Quizplus · Accepted Answer

The relative price of beer to bacon is 2:1, which means that to get 1 unit of beer, Bob must give up 2 units of bacon. Bob's current consumption ratio is MU_beer/MU_bacon=1:2, meaning he is currently consuming beer and bacon at a ratio of 1:2. Therefore, to maximize his total utility, he should consume more of the relatively cheaper good, which in this case is bacon. Consuming less beer and more bacon would improve his consumption bundle, and hence choice C is the best option.

The Relative Price of Beer to Bacon Is 2:1